Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders

1See Public Law 94–29 (S.249), June 4, 1975, Securities Acts Amendments of 1975 (‘‘1975 Amendments’’). See also 15 U.S.C. 78k–1. SECURITIES AND EXCHANGE COMMISSION 17 CFR Part 242 [Release No. 34–101070; File No. S7–30– 22] RIN 3235–AN23 Regulation NMS: Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders AGENCY: Securities and Exchange Commission. ACTION: Final rule. SUMMARY: The Securities and Exchange Commission (‘‘Commission’’ or ‘‘SEC’’) is adopting amendments to certain rules of Regulation National Market System (‘‘Regulation NMS’’) under the Securities Exchange Act of 1934, as amended (‘‘Exchange Act’’) to amend the minimum pricing increments for the quoting of certain NMS stocks, reduce the access fee caps, and enhance the transparency of better priced orders. DATES: Effective Date: December 9, 2024. Compliance dates: See section VI., titled ‘‘Compliance Dates,’’ for further information on transitioning to the final rules. FOR FURTHER INFORMATION CONTACT:
Kelly Riley, Senior Special Counsel, Johnna Dumler, Special Counsel, Steve Kuan, Special Counsel, Marc McKayle, Special Counsel, Leigh Roth, Special Counsel, and Alba Baze, Attorney￾Advisor, at (202) 551–5500, Office of Market Supervision, Division of Trading and Markets, Commission, 100 F Street NE, Washington, DC 20549. SUPPLEMENTARY INFORMATION: The Commission is adopting amendments to the following rules under Regulation NMS:
Commission reference
CFR citation
(17 CFR)
Rule 600(b)(69) ........ § 242.600(b)(69) Rule 600(b)(89) ........ § 242.600(b)(89) Rule 600(b)(93) ........ § 242.600(b)(93) Rule 603 ................... § 242.603 Rule 610 ................... § 242.610 Rule 612 ................... § 242.612
I. Introduction
A. Rule 612 Minimum Pricing Increments

1. Background
2. Proposed and Adopted Amendments
   B. Rule 610 Fees for Access to Quotations and Transparency of Fees
3. Background
4. Proposed and Adopted Amendments
   C. Transparency of Better Priced Orders
5. Background
6. Proposed and Adopted Amendments
   D. Overarching Comments on the Proposing Release
   II. Equity Market Structure Initiatives and the
   Regulation NMS Proposal
   III. Final Rule 612 of Regulation NMS—
   Minimum Pricing Increment
   A. Issues Raised in the Existing Market Structure Related to Tick Sizes B. Proposal To Amend Rule 612
   C. Final Rule—Minimum Pricing
   Increments for Orders Priced Equal to or Greater Than $1.00 per Share
7. General Comments and Discussion
8. Specific Comments on the Proposed
   Minimum Pricing Increments
9. Comments on the Number of Proposed
   Increments
10. Comments on Small- and Mid-Sized
    Stocks
11. Comments on Market Resiliency
12. Comments on Proposed Criteria for
    Assigning Minimum Pricing Increments
13. Rule 612(a)—Definitions
14. Rule 612(b)(1)—Semiannual Operative
    Dates
15. Rule 612(c)—New NMS Stocks
16. Rule 600(b)(89)—Regulatory Data
    D. Minimum Pricing Increment for Trades
    IV. Final Rule 610 of Regulation NMS—Fees
    for Access to Quotations
    A. Background
    B. Issues Raised in the Existing Market Structure and the Need for the Amendments
17. Amendments to Rule 612
18. Exchange Fee Models
    C. Proposal To Amend 610(c)
    D. Final Rule 610(c)
19. Comments on Proposed Rule 610(c)
    E. Final Rule 610(d) Requiring That All Exchange Fees and Rebates Be Determinable at the Time of an Execution
20. General Comments
    V. Final Rule—Transparency of Better Priced
    Orders
    A. Background
    B. Final Rule—Round Lots
21. Round Lot Definition
22. Proposed Acceleration of Round Lot
    Definition
23. Comments and Response
    C. Final Rule—Odd-Lot Information
24. Proposed Acceleration of Odd-Lot
    Information Definition
25. Proposed Amendment to Odd-Lot
    Information Definition for Best Odd-Lot Orders D. Display of Round Lots and Odd-Lot Information
26. Comments and Response
    E. MDI Rules Implementation
    VI. Compliance Dates
    A. Final Rule 612 Compliance Date B. Final Rule 610 Compliance Date
    C. Final Compliance Date for Round Lot
    and Odd-Lot Information
    VII. Economic Analysis
    A. Introduction
    B. Broad Economic Considerations
27. Liquidity and Spread
28. Economics of Minimum Pricing
    Increments
29. Economics of Access Fees
    C. Baseline
30. Tick Sizes
31. Access Fees
32. Round Lots, Odd-Lots, and Market Data
    Infrastructure
33. Affected Entities and Markets
34. Amendments to Rule 605
    D. Benefits, Costs, and Other Economic Effects
35. Modification of Rule 612 To Create a
    Half-Penny Tick
36. Lower Access Fee Cap
37. Exchange Fees and Rebates
    Determinable at the Time of Execution
38. Acceleration and Implementation of the
    MDI Rules and Addition of Information About Best Odd-Lot Orders
39. Compliance Costs
40. Interactions With Recently Adopted
    Rules
    E. Effect on Efficiency, Competition, and Capital Formation
41. Efficiency
42. Competition
43. Capital Formation
    F. Reasonable Alternatives
44. Tick Size Alternatives
45. Access Fee Alternatives
    VIII. Paperwork Reduction Act
    A. Summary of Collection of Information B. Proposed Use of Information
    C. Respondents
    D. Total Annual Reporting and Recordkeeping Burden
46. Initial Burden Hours and Costs
47. Ongoing Burden Hours and Costs
    E. Collection of Information Is Mandatory F. Confidentiality G. Revisions to Current MDI Rules Burden Estimates
    IX. Regulatory Flexibility Act
    A. Amendments to Rule 612—Final Regulatory Flexibility Analysis
48. Reasons for the Action
49. Small Entities Subject to the Rule
50. Reporting, Recordkeeping, and Other
    Compliance Requirements
51. Significant Alternatives
    B. Amendments to Rule 610
    C. Amendments to Rule 603 and
    Definitions Odd-Lot Information and Regulatory Data Under Rule 600 D. Certification
    X. Other Matters
    Statutory Authority and Text of Rule Amendments
    I. Introduction
    Consistent with Congress’s directive almost 50 years ago to facilitate the establishment of a national market system,1 the Commission is amending certain of its rules to respond to market developments since those rules were adopted, so that those rules continue to benefit investors and the markets. Specifically, the Commission is taking the following actions to continue to fulfill Congress’s directive and advance the objectives of investor protection and the maintenance of fair and orderly markets:

• Reduce Transaction Costs for
  Investors by Reducing Minimum Pricing Increments. The amendments will relax

2Senate Report on Securities Act Amendments of 1975, S. Rep. No. 94–75 at 8–9. 3 In particular, Congress found that it is in the public interest and appropriate for the protection of investors and maintenance of fair and orderly markets to assure five objectives: (1) economically efficient execution of transactions; (2) fair competition among brokers and dealers and among exchange markets, and between markets other than exchange markets; (3) the availability to brokers, dealers and investors of information with respect to quotations for and transactions in securities; (4) the practicability of brokers executing investors’ orders in the best market; and (5) an opportunity, consistent with items (1) and (4), for investors’ orders to be executed without the participation of a dealer. See 15 U.S.C. 78k–1(a)(1)(C). Congress also found that new data processing and communications techniques could create the opportunity for more efficient and effective market operations, and that ‘‘[t]he linking of all markets for qualified securities through communication and data processing facilities will foster efficiency, enhance competition, increase the information available to brokers, dealers, and investors, facilitate the offsetting of investors’ orders and contribute to the best execution of such orders.’’ See 15 U.S.C. 78k–1(a)(1)(B), (D). 4See Securities Exchange Act Release No. 51808 (June 9, 2005), 70 FR 37496, 37497 (June 29, 2005) (‘‘Regulation NMS Adopting Release’’). In the nearly fifty years since the enactment of section 11A, the Commission has monitored the national market system and its operation and has periodically reviewed certain of its rules to address issues that have arisen in the markets with the goal of ensuring that the regulatory framework continues to fulfill the goals of section 11A. In each such case, the Commission has been guided by the objectives embodied in section 11A. The Commission also formed the Equity Market Structure Advisory Committee (‘‘EMSAC’’) in 2015 to provide diverse perspectives on the structure and operations of the U.S. equities markets, as well as advice and recommendations on matters related to equity market structure. The archives of these meetings are available at https://www.sec.gov/spotlight/emsac/ emsac-archives.htm (‘‘EMSAC Archives’’). 5See Regulation NMS Adopting Release, supra note 4, at 37498. ‘‘NMS stock’’ is defined under Regulation NMS as any NMS security other than an option. 17 CFR 242.600(b)(65). An ‘‘NMS security’’ is defined as any security or class of securities for which transaction reports are collected, processed, and made available pursuant to an effective transaction reporting plan, or an effective national market system plan for reporting transactions in listed options. 17 CFR 242.600(b)(64). 6See Rule 612 of Regulation NMS; 17 CFR 242.612. 7See Rule 610 of Regulation NMS; 17 CFR 242.610. 8See Rules 601, 602, and 603 of Regulation NMS; 17 CFR 242.601, 17 CFR 242.602, 17 CFR 242.603. 9See
Cboe, ‘‘Historical Market Volume Data,’’ available at https://www.cboe.com/us/equities/ market_statistics/historical_market_volume/. 10The Commission has amended several aspects of Regulation NMS to address and reflect changes in the markets since its adoption. For example, in 2018, the Commission adopted new order handling disclosure requirements in Rule 606 in response to changes in equity market structure and order handling and routing practices. See Securities Exchange Act Release No. 84528 (Nov. 2, 2018), 83 FR 58338 (Nov. 19, 2018). In 2020, the Commission adopted rules to update the national market system for the collection, consolidation, and dissemination of equity market data in the national market system to keep pace with technological developments concerning the use of market data. See Securities Continued existing restrictions on market-wide minimum pricing increments (‘‘tick sizes’’), thus reducing transaction costs for investors and relaxing a constraint on price discovery for certain stocks. The reduced tick size will benefit investors and market participants by: (i) allowing stocks to be priced more efficiently and competitively, therefore lowering costs for investors to trade in those stocks; and (ii) improving liquidity, competition, and price efficiency in the markets.

• Improve Market Quality for
  Investors by Reducing Access Fee Caps and Increasing Transparency. The amendments will reduce the maximum fees that trading centers (e.g., securities exchanges) are allowed to charge investors for execution against protected quotations (‘‘access fee caps’’). The amendments will also address the lack of transparency around the cost of a transaction at the time of a trade execution by requiring exchange fees and rebates to be determinable at the time of the execution. The amendments will benefit investors and market participants by: (i) providing for access fee caps that accommodate the change in tick sizes; (ii) providing quotations that are more accurate and reflective of market forces; (iii) mitigating potential conflicts of interest between broker-dealers and their customers, where a broker-dealer is incentivized to route to the exchange offering the most favorable fees or rebates, which can lead to potentially worse execution quality for customers; (iv) reducing the complexity associated with the fees and rebates models; and (v) increasing the transparency of transaction fees and rebates.
• Improve Transparency to Investors
  about Better Priced Orders. The amendments will increase price transparency by accelerating the implementation of previously adopted definitions of ‘‘round lot’’ and ‘‘odd-lot information’’ and by adding a data element for the best odd-lot orders to buy and sell (‘‘BOLO’’) to the definition of ‘‘odd-lot information.’’ These amendments will improve information available to investors and other market participants about better priced orders in smaller sizes that are available in the market. In 1975, Congress explicitly granted the Commission ‘‘broad authority to oversee the implementation, operation, and regulation of the national market system’’ and the ‘‘clear responsibility to assure that the system develops and operates in accordance with Congressionally determined goals and objectives.’’ 2 The 1975 Amendments and section 11A of the Exchange Act set forth Congress’s findings regarding the nation’s securities markets and direct the Commission to facilitate the establishment of a national market system in accordance with specified Congressional findings and objectives.3 Since 1975, the Commission has regulated the national market system, adhering to the objectives of efficient, competitive, fair, and orderly markets that are in the public interest and protect investors, which are essential to meeting the investment needs of the public and reducing the cost of capital for listed companies.4 The national market system is premised on promoting fair competition among markets, while at the same time assuring that all of these markets are linked together, through facilities and rules, in a unified system that promotes interaction among the orders of buyers and sellers in a particular NMS stock.5 In 2005, the Commission adopted Regulation NMS to modernize and strengthen the regulatory structure of U.S. equity markets, including requirements pursuant to which quotations and orders for NMS stocks, and the markets on which they trade, can compete. These requirements support the public interest and the protection of investors and help to ensure fair and orderly markets for the execution of orders in NMS stocks. Among other things, Regulation NMS provides explicit requirements for the tick sizes of quotations and orders,6 the means for market participants to access quotations in the national market system, including a cap on the highest permitted level of fees a trading center may charge for access to the best quotations of a trading center,7 and how information about quotations and trades is made widely available to investors, among others.8 Nearly two decades later, the technology and economics of trading have evolved significantly. Transaction volume in listed equities doubled in the last five years and tripled in the last seventeen.9 Electronic trading now dominates equity markets, with latency measured in microseconds. These changes call for improvements to assure an efficient and transparent price discovery process, in order to continue to fulfill
  Congress’s directive and advance the objectives of investor protection and the maintenance of fair and orderly markets. However, some parts of Regulation NMS have not been revised since their 2005 adoption. Thus, the Commission is adopting the below described amendments to certain rules under Regulation NMS.10 The following

Exchange Act Release No. 90610 (Dec. 9, 2020), 86 FR 18596 (Apr. 9, 2021) (‘‘MDI Adopting Release’’). More recently, responding to changes in market conditions caused by technological advancements and the increased participation of individual investors in the equity markets, the Commission adopted amendments to Rule 605 under Regulation NMS to update the disclosure of order execution quality statistics reports. See Securities Exchange Act Release No. 99679 (Mar. 6, 2024), 89 FR 26428, 26429 (Apr. 15, 2024) (‘‘Rule 605 Amendments’’) (adopting amendments to rule 605 under Regulation NMS to update reports on execution quality). 11See generally Securities Exchange Act Release No. 96494 (Dec. 14, 2022), 87 FR 80266 (Dec. 29,
2022) (‘‘Proposing Release’’ or ‘‘Regulation NMS
Proposal’’).
12Whether a limit order can be executed immediately depends on the limit price in relation to the current market price. For example, a buy order with a limit price of $10.00 means the investor would like to buy as soon as possible, but only when the current market price is at $10.00 or less. By contrast, a ‘‘market order’’ is a type of order by which the investor specifies that it wishes to buy or sell a security at the current market price, regardless of what the market price is. See generally, Securities Exchange Act Release No. 96495 (Dec. 14, 2022), 88 FR 128, 132–33 (Jan. 3, 2023); Regulation NMS Adopting Release, supra note 4, at 37505 n.53. 13Limit orders may be ‘‘marketable’’ meaning that its specified price allows an immediate execution because it matches a contra-side order, or they may be ‘‘non-marketable’’ meaning that its specified price does not allow for an immediate execution and therefore it must wait until a contra-side order comes in to trade with it. Non-marketable limit orders that are submitted to an exchange are placed on the order book and, if displayable, the price and size will be displayed in the national market system if it is the best priced order to buy or sell for such exchange. The Commission has recognized displayed limit orders as ‘‘a critically important element of efficient price discovery.’’ See Regulation NMS Adopting Release, supra note 4, at 37517. 14See preexisting 17 CFR 242.612(a). For quotations and orders of NMS stocks priced less than $1.00 per share, Rule 612 required the minimum pricing increment to be $0.0001. See preexisting 17 CFR 242.612(b). However, most exchanges require stocks listed on their exchanges to maintain a price greater than $1.00 per share, and consequently $0.01 is the prevailing tick size for most quotes and orders for NMS stocks. See infra
section VII.C.1.a.
15See infra section VII.C.1.a. (discussing retail programs). 16When Rule 612 was adopted, the Commission stated that ‘‘[g]reater use of limit orders will increase price discovery and market depth and liquidity’’ and that ‘‘if orders lose execution priority because competing orders step ahead for an economically insignificant amount, liquidity could diminish.’’ See Regulation NMS Adopting Release, supra note 4, at 37505, 37553. The Commission was concerned that stepping ahead of displayed limit orders by insignificant amounts would deter the submission and display of limit orders, which would negatively impact price discovery and market depth and liquidity. See id. at 37553. See also infra section VII.A (discussing the importance of minimum pricing increments). 17But with the minimum pricing increment of a penny, that same market participant would be required to post a bid of $10.01 instead. 18See infra sections VII.A, VII.B.2, and VII.D.1. 19See infra sections VII.A, VII.B.2, and VII.D.1.b.i for additional analysis of pennying. 20See infra section VII.B.2. 21See infra section VII.B.2; see also 17 CFR 242.600(b)(16). 22See infra section VII.B.2 (providing a similar example showing how a minimum pricing increment could double the width of a bid-ask spread). 23See infra section VII.C.1.b (discussing percentage of share volume likely to be tick￾constrained). See also infra section VII.B.2 (discussing the definition of ‘‘tick-constrained’’). 24See infra section VII.B.2. 25See infra section VII.B.2. 26See Staff Report to Congress on Decimalization, Commission (July 2012) (‘‘Staff Decimalization Report’’), available at https://www.sec.gov/files/ decimalization-072012.pdf, at 4. Staff reports, Investor Bulletins, and other staff documents (included those cited herein) represent the views of Commission staff and are not a rule, regulation, or statement of the Commission. The Commission has neither approved nor disapproved the content of these staff documents, and, like all staff documents, they have no legal force or effect, do not alter or subsections provide an overview of the amendments and the rationales for each.11 A. Rule 612 Minimum Pricing Increments

1. Background
   One way that investors can buy or sell a stock is through the use of limit orders, which are a type of order that specifies the price (‘‘limit price’’) at which the investor is willing to buy or sell a security.12 Limit orders serve a critical market function by helping to set prices at which market participants are willing to trade, revealing the supply and demand for a security, and providing liquidity to the market. As such, limit orders play a key role in price discovery and allow investors to participate in the price-setting process.13 Recognizing the value of limit orders, the Commission adopted Rule 612 under Regulation NMS, which requires that the prices of quotations and orders in the national market system be reflected in a specified minimum pricing increment, also known as the ‘‘tick size.’’ Rule 612 required, for quotations and orders of NMS stocks priced at or greater than $1.00 per share, the minimum pricing increment to be $0.01.14 As a result, subject to certain exceptions,15 the quotations and orders of such NMS stocks are priced in penny increments: $10.00, $10.01, $10.02, for example. The Commission adopted Rule 612 and minimum pricing increments to address the concern that a market participant could gain priority over existing limit orders by posting an economically insignificant price improvement.16 For example, consider a market participant that posts a limit order to buy an NMS stock at $10.00 per share. Without minimum pricing increments, a second market participant could ‘‘step ahead’’ (also known as ‘‘pennying’’) of the first market participant by posting a bid to buy at a price that is higher by an infinitesimally small amount, such as $10.000001.17 This behavior disincentivizes market participants from posting a limit order in the first place because another market participant could always gain priority over that first price by posting a limit order that is better by an economically insignificant amount.18 This may lead to a decline in limit orders, harm liquidity, and make it more costly to trade.19 This hypothetical scenario illustrates the need for a minimum pricing increment that is not too small. Too big of a minimum pricing increment is also problematic since it would reduce the quality of price discovery by precluding price competition for providing liquidity.20 More specifically, too large a tick size can increase transaction costs for investors by artificially widening the ‘‘bid-ask spread’’—the difference between the bid (highest price a buyer is willing to pay) and the ask (the lowest price a seller is willing to accept) prices.21 For example, consider a hypothetical scenario where a liquidity provider is willing to bid $10.121 to buy a stock and offer $10.124 to sell the stock. If the tick size were $0.005, the resulting bid and offer from this liquidity provider would be $10.120 and $10.125, respectively, with a spread of $0.005. If the tick size were $0.01, the corresponding bid and offer would be $10.120
   and $10.130, with a spread of $0.01.22 In other words, but for the requirement under Rule 612 that sets the tick size to be $0.01 for quotes and orders in NMS stocks priced at or above $1.00, a smaller tick size would have narrowed spreads in some instances and allowed prices to better reflect the underlying economics for certain NMS stocks. As explained below, up to 74.3% of the share volume transacted in NMS stocks in 2023 may have bid-ask spreads that are constrained by the current minimum pricing increments.23 These widened bid-ask spreads increase transaction costs for investors.24 Conversely, a smaller tick size that allows for narrower bid-ask spreads would benefit investors by reducing transaction costs.25 The minimum pricing increments in Rule 612 were adopted in 2005, when the Commission adopted Regulation NMS, and it was an adjustment in a long series of adjustments to the minimum pricing increments over time. For many decades, the U.S. equity markets used fractions of a dollar as minimum pricing increments (e.g., 1⁄8, 1⁄16, and 1⁄32 of a dollar).26 Prior to 1997, the minimum

amend the applicable law, and create no new or additional obligations for any person. 27See Self-Regulatory Organizations; New York Stock Exchange, Inc.; Order Granting Approval to Proposed Rule Change Relating to Trading Differentials for Equity Securities, 62 FR 42847, 42848 n.5 (Aug. 8, 1997). See also Division of Market Regulation, Market 2000: An Examination of Current Equity Market Developments (1994), available at https://www.sec.gov/divisions/ marketreg/market2000.pdf, at 37–38, fn. 43 (describing NYSE’s tick size of 1⁄8 of a dollar in 1994). 28See Staff Decimalization Report, supra note 26, at 4–5. 29See Securities Exchange Act Release No. 42360 (Jan. 28, 2000), 65 FR 5003 (Feb. 2, 2000). 30See Staff Decimalization Report, supra note 26, at 5–6. 31See Securities Exchange Act Release No. 49325 (Feb. 26, 2004), 69 FR 11126, 11171 (Mar. 9, 2004) (‘‘2004 Regulation NMS Proposing Release’’) (‘‘the Commission is proposing a rule that would prohibit every national securities exchange, national securities association, ATS (including ECNs), vendor, broker or dealer from ranking, displaying, or accepting from any person a bid or offer, an order, or an indication of interest in any NMS stock in an increment less than $0.01.’’). 32See Regulation NMS Adopting Release, supra note 4, at 37551–52 (citing 2004 Regulation NMS Proposing Release at 11165). 33See Regulation NMS Adopting Release, supra note 4, at 37553 (‘‘Even assuming that quoting in sub-penny increments would reduce spreads, the Commission continues to believe, on balance, that the costs of sub-penny quoting are not justified by the benefits.’’). 34 Id. (‘‘Nevertheless, the Commission acknowledges the possibility that the balance of costs and benefits could shift in a limited number of cases or as the markets continue to evolve.’’). 35See infra section VII.D.1. 36See infra sections VII.B.2 and VII.D.1.b. 37See Proposing Release, supra note 11, at 80280. 38See infra section III.C. 39See infra section III.D. 40 17 CFR 242.600(b)(106) (providing a definition of the term ‘‘trading center’’). This discussion focuses on exchange fees because, currently, exchanges are the only trading centers that have quotations that are subject to the access fee caps under Rule 610(c). See infra note 367. 41See also infra sections VII.B.3 and VII.C.2.c,
table 5 and table 6 (showing the predominance of
both dollar and share exchange trading volume occurs on maker-taker venues). 42 17 CFR 242.610(c). A protected quotation is defined in Rule 600(b)(82) as ‘‘a protected bid or protected offer.’’ 17 CFR 242.600(b)(82). A protected bid or protected offer is defined as ‘‘a quotation in an NMS stock that: (i) Is displayed by an automated trading center; (ii) Is disseminated pursuant to an effective national market system plan; and (iii) Is an automated quotation that is the best bid or best offer of a national securities exchange, or the best bid or best offer of a national securities association.’’ 17 CFR 242.600(b)(81). 43For purposes of this discussion, references to protected quotations under Rule 610(c) also include manual quotations that are the best bid or best offer of an exchange or association. 44See Regulation NMS Adopting Release, supra note 4, at 37545. 45See Regulation NMS Adopting Release, supra note 4, at 37544 n.406. pricing increment on the New York Stock Exchange LLC (‘‘NYSE’’) for stocks above $1.00 per share was 1⁄8 of a dollar (or 12.5 cents).27 In 1997, NYSE and the Nasdaq Stock Market LLC (‘‘Nasdaq’’) revised their rules to use the minimum pricing increment of 1/16 of a dollar (6.25 cents).28 In January 2000, the Commission mandated decimal pricing (i.e., moving from fractional increments to penny increments) in certain securities,29 and by April 2001, the market had fully converted to decimal pricing.30 Up to this point, minimum pricing increments for NMS stocks were set by the individual trading venues. But in 2004, as part of Regulation NMS and pursuant to the authority under the 1975 Amendments, the Commission proposed Rule 612 to implement market-wide uniform minimum pricing increments for quoting in NMS stocks.31 The Commission stated that, while the benefits of decimal pricing had justified the costs, there was a potential for costs to investors and the markets to surpass the benefits if the minimum pricing increment decreased beyond a certain level, and the proposed rule was designed to address the scenario where market participants attempt to step ahead of competing limit orders at the smallest economic increment possible.32 Thus, the Commission adopted Rule 612 in 2005, which established the minimum pricing increments of $0.01 for quotations and orders of NMS stocks priced at, or greater than, $1.00 per share, and $0.0001 for quotations and orders of NMS stocks priced under $1.00 per share. The Commission stated that, at the time, it did not believe that the potential benefits of marginally better prices offered by allowing sub￾penny quoting in securities were likely to justify the costs of permitting such quotes.33 When the Commission adopted Rule 612 in 2005, it acknowledged that the markets could evolve over time and shift the balance of the costs and benefits of the adopted tick size.34 Two decades later, the market has evolved considerably, and amendments to Rule 612 are necessary to continue to further the
objectives of the Exchange Act. Data analysis shows that stocks with sufficiently narrow bid-ask spreads would trade better, namely it would be easier and less costly for investors to transact, if they were allowed to quote at increments smaller than one penny.35 Indeed, for these stocks, the risks of ‘‘stepping ahead’’ are lowered while the benefits of greater price competition from relaxing the ‘‘tick constraint’’ are greater.36
2. Proposed and Adopted Amendments
Accordingly, the Commission proposed amendments to Rule 612 to introduce three minimum pricing increments that were less than $0.01 (i.e., $0.005, $0.002, $0.001) for quotes and orders priced $1.00 or more for certain NMS stocks based upon each stock’s time weighted average quoted spread (‘‘TWAQS’’).37 The proposed amendments would have assigned sub￾penny minimum pricing increments to any NMS stock that had a TWAQS of $0.04 or less. This proposed amendment was designed to address the issues related to tick-constrained stocks described above that have arisen since
2005. The Commission also proposed to
impose these minimum pricing increments for trades, subject to certain exceptions. As explained below, in response to commenters, the Commission is adopting modified amendments to Rule 612 to introduce one minimum pricing increment that is less than $0.01, i.e., $0.005, for quotes and orders priced $1.00 or more for NMS stocks that have a TWAQS of $0.015 or less.38 The Commission is not adopting a minimum pricing increment for trades.39 B. Rule 610 Fees for Access to Quotations and Transparency of Fees

1. Background
   Trading centers 40 can choose to charge an access fee, or pay a rebate, to the participants—liquidity providers (market participants with orders resting at the trading center) and liquidity takers (market participants who submit incoming orders to execute against orders resting at the trading center)— who trade at their venue. As discussed in section VII.C.2.b, the predominant exchange fee structure is maker-taker, in which an exchange charges a fee to liquidity takers and pays a rebate to liquidity providers, and the rebate is typically funded through the access fee.41 As adopted in 2005, Rule 610(c) set the access fee cap for protected quotations 42 priced at $1 or more at 30 cents per 100 shares (‘‘30 mils’’ per share) for NMS stocks. Rule 610(c) also applies to any other quotation of a trading center that is the best bid or offer of an exchange or association.43 The access fee cap was based, in part, upon the prevailing fees that were charged by certain trading centers at that time.44 For NMS stocks priced below $1, the fee cap was set at 0.3% of the quotation price.45 Rule 610 was adopted at the same time as Rule 611, the Order Protection Rule, which established intermarket protection

46A trade-through occurs when a trading center executes an order at a price that is inferior to the price of a protected quotation that is displayed by another trading center. See 17 CFR 242.600(b)(105) for the definition of trade-through under Regulation NMS. 47See Regulation NMS Adopting Release, supra note 4, at 37544 and 37595. 48See Regulation NMS Adopting Release, supra note 4, at 37544. 49See infra sections IV.D.1 and VII.D.2.a. See also Proposing Release, supra note 11, at 80348 (stating ‘‘the access fee cap should not be greater than 1⁄2 of the tick size in order to preserve coherence between net and nominal price rankings of trading venues.’’). 50See infra sections VII.B.3 and VII.C.2. 51See infra sections IV.D.1 and VII.B.3. See also Regulation NMS Adopting Release, supra note 4, at 37545 (‘‘For quotations to be fair and useful, there must be some limit on the extent to which the true price for those who access quotations can vary from the displayed price.’’). 52See infra sections IV.B.2, VII.D.2, and VII.E.1. In certain cases, the disparity between market quotations and actual transaction costs may be substantial. See, e.g., Proposing Release, supra note 11, at 80328. 53See infra sections IV.B.2, IV.D and VII.D.3. 54See text accompanying infra note 1518. 55See infra sections IV.E, VII.C.2, and VII.D.3. 56See infra sections IV.E, VII.C.2, and VII.D.3. 57See infra section IV.D. 58See id. 59NMS information is made widely available to investors through the national market system and ‘‘serves an essential linkage function by helping to assure that the public is aware of the best displayed prices for a stock, no matter where they may arise in the national market system.’’ See Securities Exchange Act Release No. 61358 (Jan. 14, 2010), 75 FR 3594 (Jan. 21, 2010) (‘‘Concept Release on Equity Market Structure’’) at 3600. The availability of NMS information also ‘‘enables investors to monitor the prices at which their orders are executed and assess whether their orders received best execution.’’ Id. 60There are three effective national market system plans that govern the collection, consolidation, processing and dissemination of quotation and transaction information for NMS stocks: the Consolidated Tape Association Plan (‘‘CTA Plan’’); the Consolidated Quotation Plan (‘‘CQ Plan’’); and the Joint Self-Regulatory Organization Plan Governing the Collection, Consolidation, and Dissemination of Quotation and Transaction Information for Nasdaq-Listed Securities Traded on Exchanges on an Unlisted Trading Privileges Basis (‘‘UTP Plan’’) (together the ‘‘Equity Data Plans’’). Currently, the Securities Industry Automation Corporation (‘‘SIAC,’’ an affiliate of the NYSE) is the exclusive SIP for the CTA and CQ Plans, and Nasdaq is the exclusive SIP against trade-throughs 46 for all NMS stocks. Rule 610(c) was designed to preclude trading centers that posted protected quotations from raising their fees in an attempt to take improper advantage of the
trade-through protections adopted under Rule 611.47 The Commission designed the access fee caps to preserve the benefits of both the strengthened price protection under Rule 611 and the more efficient linkages among trading centers that were developed under Regulation NMS to access protected quotations because the benefits could be compromised if substantial fees were charged.48 Since an access fee that is too high when compared to the tick size can create pricing distortions, the access fee caps need to be adjusted in conjunction with the reduction in tick size to prevent such distortions.49 In addition, as discussed below, many exchanges charge the maximum fee allowed to access protected quotes, and primarily use those fees to pay rebates to market participants that provide liquidity.50 This practice raises a number of concerns and may interfere with section 11A’s objectives of ensuring the fairness and usefulness of quotation information.51 First, the actual prices, inclusive of fees and rebates, for investors and other market participants to trade a stock are not fully transparent. In general, the higher the permitted level of access fees, the higher the rebates, and the greater the potential discrepancy between displayed quoted prices on the one hand, and actual prices on the other.52 Furthermore, exchanges’ use of fees and rebates creates a potential conflict of interest between broker-dealers and their customers with respect to broker￾dealer order routing, by providing incentives for a broker-dealer to route customer orders to certain exchanges to receive higher rebates or avoid higher fees based on their own economic interest.53 This potential conflict of interest is exacerbated if broker-dealers do not fully pass on the fees and rebate to their customers, since rebate-seeking by broker-dealers may come at the cost of execution quality of customers.54 In addition, exchanges use complex fee schedules. Generally, the higher the access fee cap, the wider the range of possible fees and rebates, which results in more complex pricing schedules. Such complexity makes it more costly for market participants to design and implement order execution strategies. Finally, exchanges’ fee and rebate schedules are typically calculated at month’s end, which requires market participants to make trading decisions without the ability to determine their full trading costs at the time of execution.55 In turn, this lack of transparency impedes a market participant’s ability to evaluate fully where to send its orders because the market participant cannot calculate the fees and rebates that will apply to the order contemporaneous with execution.56 Concerns with such lack of price transparency are exacerbated when various exchanges have different fee schedules, as it is difficult for market participants to compare net prices across markets.
2. Proposed and Adopted Amendments
Accordingly, the Commission proposed to amend Rule 610 in two ways. First, to accommodate the proposed smaller minimum pricing increments under proposed Rule 612, as well as to address the distortions that have developed under the access fee caps, the Commission proposed to reduce Rule 610(c)’s 30 mil cap for executions against protected quotations priced $1.00 or more as follows: a $0.001 (or 10 mils) access fee cap for NMS stocks that would have been assigned a minimum pricing increment larger than $0.001; and a $0.0005 (or 5 mils) access fee cap for NMS stocks that would have been assigned a $0.001 minimum pricing increment. For protected quotations in NMS stocks priced under $1.00 per share, the Commission proposed to reduce the 0.3% fee cap to 0.05% of the quotation price. As discussed in detail below, in response to comments, the Commission is adopting amendments to Rule 610(c) with modifications from the proposal. Specifically, in light of the amendments to Rule 612, the Commission is adopting only the proposed 10 mil per share access fee cap for all protected quotations priced $1.00 or more.57 For protected quotations priced less than $1.00, the Commission is adopting an access fee cap of 0.1% of the quotation price per share.58 As discussed in
section VII.D.2.b, the adopted
amendments to the access fee caps will not impede the ability of exchanges to fund their execution services. Second, to facilitate the ability of market participants to understand and calculate the total price of transactions at the time of execution, the Commission proposed an amendment to Rule 610 to add subpart (d) to require that all exchange fees charged, and rebates paid, for the execution of an order in an NMS stock be determinable at the time of execution. As discussed in detail below, the Commission is adopting Rule 610(d) as proposed.
C. Transparency of Better Priced Orders

1. Background
   The widespread availability of timely information with respect to quotations for and transactions in NMS stocks (‘‘NMS information’’) is critical to the ability of market participants to participate effectively in the U.S. securities markets.59 NMS information is currently disseminated within the national market system by the exclusive plan processors (‘‘exclusive securities information processors’’ or ‘‘SIPs’’).60

for the UTP Plan. See MDI Adopting Release, supra note 10, at 18728. Each exclusive SIP is the plan processor for one of the Equity Data Plans. 61See MDI Adopting Release, supra note 10. 62 ‘‘Better priced orders’’ refers to orders that are priced superior to the national best bid and national best offer but are not included in NMS information because they consist of too few shares. See infra notes 66–68 and accompanying text. The MDI Rules’ round lot and odd-lot information definitions will allow better priced orders to be included in NMS information so that market participants that subscribe to the exclusive SIP feeds (that otherwise would not be able to view these orders without purchasing exchange proprietary feeds) will be able to view and access these orders. 63See infra sections V.C.1.a and VII.D.4. 64Odd-lot is defined in Rule 600(b)(68) as an order for the purchase or sale of an NMS stock in an amount less than a round lot. 17 CFR 242.600(b)(68). 65See Proposing Release, supra note 11, at 80294. Under the decentralized consolidation model established by the MDI Rules, NMS information will consist of ‘‘consolidated market data,’’ as defined in the MDI Rules. 17 CFR 242.600(b)(24). 66See Proposing Release, supra note 11, at 80294 n.328. A ‘‘round lot’’ is not defined in the Exchange Act and, prior to the MDI Rules, it was not defined in Regulation NMS. Exchange rules typically define a round lot as 100 shares, but they also allow the exchange, or the primary listing exchange for the stock, discretion to define it otherwise. See, e.g., NYSE Rule 7.5 (‘‘A ‘round lot’ is 100 shares, unless specified by the primary listing market to be fewer than 100 shares.’’). 67According to NYSE Trade and Quote (‘‘TAQ’’) Data, as of Nov. 28, 2023, 11 NMS stocks have a round lot size other than 100. Nine NMS stocks have a round lot size of 10 and two NMS stocks have a round lot size of one share. 68See Proposing Release, supra note 11, at 80294; MDI Adopting Release, supra note 10, at 18599. 69See Proposing Release, supra note 11, at 80270. 70 17 CFR 242.600(b)(93). In the MDI Adopting Release, the Commission stated that ‘‘[d]efining smaller-sized orders in higher-priced stocks as round lots, in addition to providing transparency into such quotations, ensures that these smaller￾sized orders can establish the [national best bid and national best offer], receive order protection, and invoke the applicability of several other rules under Regulation NMS.’’ See MDI Adopting Release, supra note 10, at 18613. 71Preexisting 17 CFR 242.600(b)(69). ‘‘Odd-lot information’’ is defined as (1) odd-lot transactions, and (2) odd-lots at a price greater than or equal to the national best bid and less than or equal to the national best offer, aggregated at each price level at each national securities exchange and national securities association. Id. 72The Commission stated that the inclusion of this odd-lot quotation information would allow market participants ‘‘to trade in a
more informed and effective manner,’’ and that ‘‘the new definition of round lot and the increased availability of better priced odd-lot information will provide investors with valuable information about the best prices available and help to facilitate more informed order routing decisions and the best execution of investor orders.’’ See MDI Adopting Release, supra note 10, at 18602 and 18613. Unlike orders in the round lot sizes adopted pursuant to the MDI Rules, odd-lots are not ‘‘protected quotations.’’ See 17 CFR 242.600(b)(16), (81), (82). 73See MDI Adopting Release, supra note 10, at
18698. Pursuant to the implementation schedule of
the MDI Rules, the round lot definition was set to be implemented as part of the last phase and odd￾lot quotation information was set to be implemented during a ‘‘parallel operation period.’’ See id. at 18700–01. As originally adopted, during the parallel operation period, the exclusive SIPs would have continued to disseminate the data that they currently disseminate and competing consolidators would have been permitted to offer consolidated market data products, including odd￾lot information. Because the round lot definition would have been implemented during a later phase, the exclusive SIPs and competing consolidators would have collected, consolidated and disseminated NMS information based on then current exchange definitions of round lot. Id. at 18699–18701. 74 17 CFR 242.614(e). The Commission’s approval of amendments to the effective national market system plan(s) filed pursuant to rule 614(e) will be the starting point for the rest of the MDI Rules implementation schedule, which includes a 180- day development period, during which competing consolidators can register with the Commission, and ends with the cessation of the operations of the exclusive SIPs and testing and implementation of the changes necessary to implement the round lot definition. See MDI Adopting Release, supra note 10, at 18699–701; Proposing Release, supra note 11, at 80295. 75See supra note 60. 76See Securities Exchange Act Release Nos. 93615 (Nov. 19, 2021), 86 FR 67800 (Nov. 29, 2021); 93625 (Nov. 19, 2021), 86 FR 67517 (Nov. 26, 2021); 93620 (Nov. 19, 2021), 86 FR 67541 (Nov. 26, 2021); 93618 (Nov. 19, 2021), 86 FR 67562 (Nov. 26, 2021). 77See Securities Exchange Act Release Nos. 95848 (Sept. 21, 2022), 87 FR 58544 (Sept. 27, 2022); 95849 (Sept. 21, 2022), 87 FR 58592 (Sept. 27, 2022); 95850 (Sept. 21, 2022), 87 FR 58560 (Sept. 27, 2022); 95851 (Sept. 21, 2022), 87 FR 58613 (Sept. 27, 2022). 78On Sept. 1, 2023, the Commission ordered the exchanges and the Financial Industry Regulatory Authority, Inc. (‘‘FINRA’’) to file a new single national market system plan regarding consolidated equity market data. See Securities Exchange Act Release No. 98271, 88 FR 61630 (Sept. 7, 2023). On Jan. 19, 2024, the Commission published notice of filing of a National Market System Plan for Continued In 2020, the Commission adopted amendments to Regulation NMS to modernize the NMS information provided within the national market system for the benefit of market participants and to better achieve
section 11A’s goals of assuring ‘‘the
availability to brokers, dealers, and investors of information with respect to quotations for and transactions in securities that is prompt, accurate, reliable, and fair’’ (‘‘MDI Rules’’).61 In light of delays in the implementation of the MDI Rules, the Commission is accelerating the implementation of the round lot and odd-lot information definitions adopted as part of the MDI Rules so that investors will benefit sooner from greater transparency and accessibility of better priced orders 62 and improved ability to assess the execution quality of their orders, as explained below.63 Until the full implementation of the MDI Rules, NMS information disseminated within the national market system by the exclusive SIPs includes, for each NMS stock, the price, size, and exchange of each last sale, each exchange’s current highest bid and lowest offer and the shares available at those prices (the best bid and best offer or ‘‘BBO’’), the national best bid and national best offer (‘‘NBBO’’), odd-lot 64 transaction information, and certain regulatory and administrative data (‘‘SIP data’’).65 Information on NMS stock quotations is provided in round lots, and, until the round lot definition adopted in the MDI Rules is implemented, round lots are defined in rules of the exchanges.66 For most NMS stocks, exchange rules define a round lot as 100 shares.67 Market participants interested in quotation data for orders that have a size less than a round lot, i.e., odd-lots, must purchase individual exchange proprietary feeds.68 This odd￾lot order information is highly relevant to market participants, including for investors who trade small numbers of shares. The MDI Rules expanded the NMS information that will be made available for dissemination within the national market system in order to increase transparency about better prices available in the market.69 The Commission, in the MDI Rules, amended Regulation NMS to include a definition of ‘‘round lot’’ that assigns each NMS stock to a round lot size based on the stock’s average closing price. The round lot definition, once implemented, will increase transparency about smaller sized orders in higher priced stocks by assigning NMS stocks priced over $250 to round lot sizes that are less than the predominant 100 shares.70 The Commission also adopted a definition of odd-lot information as part of the MDI Rules.71 Once implemented, information regarding the prices and sizes of odd-lot orders priced better than the NBBO will be made available within the national market system and is expected to be made widely available to investors.72 For the reasons explained in the MDI Adopting Release, the MDI Rules sequenced the implementation of these definitions in the later stages of the implementation schedule.73 The implementation of the MDI Rules began with the filing of amendments to the effective national market system plan(s) as required under Rule 614(e) (‘‘MDI Plan Amendments’’).74 The Operating Committees of the CTA/CQ Plan
and UTP Plan 75 filed the proposed MDI Plan Amendments on November 5, 2021,76 which the Commission disapproved.77 As a result, the participants to the effective national market system plan(s) will need to develop and file new proposed amendments pursuant to Rule 608.78

Consolidated Equity Market Data. See Securities Exchange Act Release No. 99403, 89 FR 5002 (Jan. 25, 2024). On April 23, 2024, the Commission instituted proceedings pursuant to Rule 608(b)(2)(i) of Regulation NMS to determine whether to approve or disapprove the proposed plan or to approve the proposed plan with any changes or subject to any conditions the Commission deems necessary or appropriate after considering public comment. See Securities Exchange Act Release No. 100017, 89 FR 33412 (Apr. 29, 2024). On July 11, 2024, the Commission extended the period within which to conclude proceedings regarding the proposed plan to 240 days from the date of publication of the notice. See Securities Exchange Act Release No. 100500 (Jul. 11, 2024), 89 FR 58235 (Jul. 17, 2024). 79See Proposing Release, supra note 11, at 80299; see also infra sections V.B.2. and V.C.1. In addition, as discussed below, the Commission is amending the definition of round lot so that the frequency of round lot changes will be consistent with the frequency of minimum pricing increment changes under amended Rule 612. See infra section V.B.3.b. The Commission is not changing the calculation used to assign round lots or the round lot tiers in the round lot definition adopted in the MDI Rules. 80See infra sections V.B.3, V.C.1, and VI.C. 81See infra section V.C.2. 82The comment letters on the Proposing Release (File No. 7–30–33) are available at https:// www.sec.gov/comments/s7-30-22/s73022.htm. 83See, e.g., Letters from Mark Rogers dated Mar. 30, 2023 (‘‘I approve of the proposed changes to Regulation NMS’’); Omar Fakhro dated Mar. 28, 2023 (‘‘I as a household investor strongly support this rule for a better and fair market for EVERYONE’’); Danielle Ball dated Mar. 27, 2023 (‘‘The proposed tick size regime, variable minimum pricing increment model, and revised round lot definition are important steps towards promoting fair and transparent pricing across trading venues.’’); Keith Noble dated Apr. 1, 2023; Chris Miller dated Apr. 1, 2023; Kristen Palmer dated Apr. 1, 2023; Amanda Kappes dated Apr. 1, 2023; Ian Rohel, dated Apr. 1, 2023; Riley Hume dated Apr. 1, 2023; Matt Kelleher dated Apr. 1, 2023; Keagan Wethington dated Mar. 31, 2023; J.W. Verret, Associate Professor, George Mason University Antonin Scalia Law School, dated Jan. 12, 2024 (‘‘Verret Letter III’’) at 26 (‘‘. . . the proposed amendments to Reg NMS rules regarding minimum pricing increments and the proposed reforms to volume/access fees both support the core principles of free market economics and will lead to a more competitive, transparent, and efficient market landscape.’’); Eric Budish, Paul G. McDermott Professor of Economics and Entrepreneurship, The University of Chicago Booth School of Business, dated Jan. 18, 2024 (‘‘Budish Letter’’) at 1 (‘‘. . . this set of rules changes— primarily, a finer tick-size for tick-constrained stocks, a lower access fee cap, and harmonization of pricing increments for on-exchange
and off￾exchange trading—will reduce both investors’ costs and the overall complexity of U.S. equity markets.’’); Stephen W. Hall, Legal Director and Securities Specialist, and Brady Williams, Legal Counsel, Better Markets, Inc., dated Mar. 31, 2023 (‘‘Better Markets Letter I’’) at 8–17; Joseph Saluzzi, Partner, Themis Trading LLC, dated Mar. 31, 2023 (‘‘Themis Letter’’) at 2–8; John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, dated Mar. 20, 2023 (‘‘IEX Letter I’’); Letter Type A, of which 22 comments were received; Letter Type C, of which 5 comments were received; Letter Type D, of which 255 comments were received; Letter Type E, of which 14 comments were received; Letter Type G, of which 652 comments were received; Letter Type H, of which 853 comments were received; Letter Type I, of which 22 comments were received; Letter Type J, of which 15 comments were received; Letter Type K, of which 22 comments were received; and Letter Type L, of which 4 comments were received; available at https://www.sec.gov/comments/s7-30-22/ s73022.htm. 84See, e.g., Letters from Tyler Gellasch, President & CEO, Healthy Markets Association, dated Mar. 31, 2023 (‘‘Healthy Markets Letter I’’) at 28, 31; J. W. Verret, Associate Professor, George Mason University Antonin Scalia Law School, dated Sept. 20, 2023 (‘‘Verret Letter I’’) at 1–2, 4, 5. 85See Healthy Markets Letter I at 28, 31. 86See Verret Letter I at 1. 87 Verret Letter I at 1–2. 88See Verret Letter I at 2 (stating that the Regulation NMS Proposal is supported by ‘‘a wealth of prior work by the Commission in the form of a pilot tick size study, comments submitted to the SEC regarding the transaction fee pilot, and numerous roundtables and proceedings of the SEC’s Investor Advisory Committee and SEC’s Equity Market Structure Advisory Committee.’’). 89See, e.g., infra note 92. 90See, e.g., EMSAC Archives, supra note 4 (Rule 610 was considered at the EMSAC), see also supra note 4 (discussing the EMSAC); infra note 362 and accompanying text for a discussion of previous considerations of Rule 610. For a discussion of previous considerations of Rule 612, see Proposing Release, supra note 11, at 80272. 91See infra sections V.B.1; V.B.3.b.iv and VII.D. 92See also Proposing Release, supra note 11, at 80272 (discussing considerations of minimum pricing increments since Rule 612 was adopted) and 80287 (discussing considerations of access fee caps since Rule 610 was adopted). See also IEX Letter I at 5 (describing steps taken by the Commission since the adoption of Regulation NMS in 2005 to review the impact of Regulation NMS, including the solicitation of input from stakeholders, further stating, ‘‘[t]he history shows that the Commission’s current Proposals do not arise in a vacuum. In fact, the Commission has deliberately considered the views of multiple stakeholders over years of review, and its current Proposals grow out of and build on that ongoing review.’’).
2. Proposed and Adopted Amendments
In light of the delays in the implementation of the MDI Rules, the Commission proposed to accelerate the implementation of the round lot and odd-lot information definitions, to allow investors to benefit sooner from greater transparency and accessibility of better priced orders and improved execution quality.79 As discussed further below, the Commission is accelerating the implementation of the round lot and odd-lot information definitions but is providing the industry with more time to make the necessary systems changes to implement these definitions than what was proposed.80 Additionally, the Commission proposed to amend the definition of odd-lot information to include a new data element for the best odd-lot orders available in the market, which would be made available to investors broadly. The Commission is adopting the best odd-lot order to buy and the best odd-lot order to sell as part of odd-lot information as proposed.81 D. Overarching Comments on the Proposing Release The Commission received comments from a variety of market participants on the Proposing Release.82 Many commenters broadly supported the Regulation NMS Proposal.83 Two commenters urged the Commission to promptly adopt the Regulation NMS Proposal.84 One commenter urged the Commission to revise and adopt the Rule 605 Proposal as well as the Regulation NMS Proposal without delay.85 Another commenter suggested that the Commission prioritize the adoption of the Regulation NMS Proposal 86 stating that, of the four EMS Proposals related to equity market structure, the Regulation NMS Proposal ‘‘is the least controversial and the least interdependent on the other three, and so is the easiest one for the Commission to move forward’’ 87 and ‘‘has garnered the most consensus and support from various market participants.’’ 88 Some commenters agreed that Rules 610 and 612 should be amended but recommended that the proposed amendments be modified and that the Commission consider more modest, incremental changes to minimize the possibility of unintended consequences and to enable the Commission and market participants to evaluate the impact of the changes on trading and execution quality.89 The issues related to the amended rules have been considered by the Commission and market participants for several years.90 Further, the Commission has analyzed data provided by market participants and conducted its own data analysis to inform the amendments that were included in the Proposing Release and in this release.91 The Commission has evaluated the national market system and its operation in light of changes in the market and has sought input from market participants throughout this process.92 After considering the comments, which are discussed in context below, the Commission is adopting amendments to these rules with certain modifications from the Proposing Release. The Commission received several comments that addressed the interaction between the different individual proposed rule amendments
that made up the Regulation NMS Proposal. One commenter stated that adopting the proposed changes to the minimum pricing increments in proposed Rule 612 along with the proposed acceleration of the round lot definition and the proposed access fee caps in Rule 610 ‘‘would impact the value of providing liquidity on public markets and consequently would raise costs for

93See Letter from Naureen Hassan, President, UBS Americas, Robert Karofsky, President, UBS Investment Bank, and Suni Harford, President, UBS Asset Management, dated Mar. 31, 2023 (‘‘UBS Letter’’) at 10. See infra section V.B.3.b.i and section VII.D.4.a for discussions of the interaction between the round lot definition and the proposed changes to the minimum pricing increments. 94See infra section VII.D.4.a (explaining that the interaction of the reduction in tick size and the MDI Rules’ round lot definition would not have a material impact on the NBBO for affected stocks as such stocks would be exceptionally liquid, which should protect their NBBO from material deterioration). 95See Letter from Derrick Chan, Head of Equities, Fidelity Capital Markets, dated Mar. 31, 2023 (‘‘Fidelity Letter’’) at 17. The commenter described ‘‘market data costs’’ as those related to systems changes necessary to implement the new minimum pricing increments, round lot definition, and odd￾lot information definition. 96See infra section III.C. 97See infra section III.C.7.a; section III.C.8;
section VII.D.1.d and section VII.F.1.c.
98See infra section VII.A; section VII.D.1.c (responding to comments raising concerns about increased message traffic increasing costs and stating: ‘‘[t]he Commission recognizes the potential for these costs articulated by the commenters but, considering additional information provided by commenters, expects these effects to be mild— including the effect on CAT costs.’’). 99See infra notes 1594–1595 and accompanying text. 100See Proposing Release, supra note 11, at 80334. 101See infra section VII.D.5. 102See Letter from Rich Steiner, Head of Global Market Structure, RBC Capital Markets, dated Mar. 31, 2023 (‘‘RBC Letter’’) at 2. See also Letter from Nathaniel N. Evarts, Managing Director, Head of Trading, Americas, and Kimberly Russell, Market Structure Specialist, Global SPDR Business, State Street Global Advisors, dated Mar. 30, 2023 (‘‘State Street Letter’’) at 5 (suggesting that the amendments to reduce the access fee caps should be implemented before the minimum pricing increments to isolate the impact of the effects) and infra section VII.D.2.c (responding to the State Street Letter). 103See infra note 801 for analysis identifying only two stocks that would have qualified for both the tick reduction and a reduction in the round lot as of Nov. 30, 2023. See also infra section VII.D.4.a for a discussion of the small overlap of the round lot definition and the tick size change. 104See, infra, section II. The Commission recognizes that delaying the rule would likewise delay costs to affected parties. 105See, e.g., Letters from Jennifer W. Han, Executive Vice President, Chief Counsel & Head of Global Regulatory Affairs, Managed Funds Association, dated Mar. 30, 2023 (‘‘MFA Letter’’) at 14; Sarah A. Bessin, Deputy General Counsel, and Nhan Nguyen, Assistant General Counsel, Investment Company Institute, dated Mar. 31, 2023 (‘‘ICI Letter I’’) at 2, 7; Gerald O’Reilly, Co-CEO and Chief Investment Officer, and Ryan Wiley, Global Head of Equity Trading, Dimensional Fund Advisors LP, dated Mar. 31, 2023 (‘‘Dimensional Letter’’) at 2. 106See Letter from Hubert De Jesus, Managing Director, Global Head of Market Structure and Electronic Trading, and Samantha DeZur, Managing Director, Global Public Policy Group, BlackRock, Inc., dated Mar. 31, 2023 (‘‘BlackRock Letter’’) at 17; Dimensional Letter at 2. investors,’’ and urged the Commission to review how these changes would together impact liquidity.93 The Commission has considered the impact of the amendments on liquidity and does not believe that they will raise costs for investors.94 On the contrary, as discussed further below, the amendments will enhance the ability of market participants to price their orders in a competitive manner, reduce the amount of fees for accessing protected quotations, help to ensure that exchange fees are knowable when an order is placed and provide transparency about orders in the market that are priced better than the NBBO. These changes will enhance the operation of the
national market system and provide significant benefits to investors. Another commenter stated that the Regulation NMS Proposal would increase ‘‘market data costs’’ because retail brokers would have to take in and store an increased amount of market data to comply with the changing minimum pricing increments, the MDI Rules’ round lot definition, and the odd￾lot information requirements and to update their systems accordingly, and because the exclusive SIPs may cause third-party data vendors to require additional hardware to support higher message rates.95 As discussed below,96 the Commission is adopting amendments to the minimum pricing increments with modifications from the proposal, which will lessen the potential costs identified by the commenter. Specifically, the Commission is adopting one minimum pricing increment for a smaller universe of NMS stocks than was proposed and is reducing the frequency of minimum pricing increment updates from a quarterly to a semiannual basis.97 While this additional minimum pricing increment will likely require market participants to incur new technology costs to manage the new data, fewer changes are being adopted than were proposed and these changes are necessary and justified to address the issues related to constraints that have developed with the $0.01 minimum pricing increment.98 Further, the costs related to implementing the round lot definition were considered as part of the MDI Rules and the acceleration of the timing of implementation does not increase those costs. Although the Commission is modifying the round lot definition from the definition adopted in the MDI Rules, the modifications will reduce ongoing round lot implementation costs because round lots will be assigned less frequently, i.e., from a monthly basis to a semiannual basis, which means that systems will have to be updated less frequently. Synchronizing the dates of the changes to round lots and minimum pricing increments should also lower ongoing implementation costs for market participants by potentially decreasing the number of updates needed for their trading systems.99 Finally, the costs related to implementing the odd-lot information definition were considered in the Proposing Release.100 The adopted amendments, which will result in fewer systems changes than anticipated in the Proposing Release, will result in lower implementation costs than were contemplated in the proposal 101 and reduce the amount of data disseminated by the exclusive SIPs and any future competing consolidators as compared to what was contemplated in the Proposing Release. One commenter stated that the implementation of various components of the Proposing Release at or around the same time (specifically access fees, minimum pricing increments and round lot sizes) could complicate the Commission’s ability to assess the impact of a specific change and ‘‘whether other consequences will ensue.’’ 102 To the specific concerns of this commenter, the Commission has
carefully considered the interacting effects of access fees, minimum pricing increments, and round lot sizes, see
section VII. While the Commission
acknowledges that staging amendments may make them easier to study, the nature of the adopted amendments will still make such study possible, even if implemented together. Namely, the set of stocks for which the tick size change applies tends to differ from the set of stocks for which round lot changes apply.103 Access fee changes apply to some stocks that will not be directly affected by either round lot reform or tick size changes. Further, staging the amendments would delay the significant benefits of the amendments.104 Several commenters suggested implementing the proposed accelerated implementation of the round lot and odd-lot information definitions so that the effects of these definitions could inform other proposed changes.105 Other commenters suggested that round lots should be implemented before the proposed changes to the minimum pricing increments, so that data based on the MDI Rules’ round lots could inform changes to the minimum pricing increments.106 While the dissemination of odd-lot information will result in the display of narrower spreads based on odd-lots, the calculation of the TWAQS for determining minimum pricing

107See infra section III.C.7.b.
108See infra section V.B.3.b.i (identifying only two stocks—both highly liquid—that would have qualified for both a tick reduction and a reduction in the round lot as of Nov. 30, 2023). 109See infra section VII.D.4. 110 Id. 111See, e.g., Letters from Michael Blaugrund, Chief Operating Officer, NYSE, Jason Clague, Managing Director, Head of Operations, Charles Schwab & Co., and Joseph Mecane, Head of Execution Services, Citadel Securities, dated Mar. 6, 2023 (‘‘NYSE, Schwab, and Citadel Letter’’) at 2; Jason Clague, Managing Director, Head of Operations, Charles Schwab & Co., Inc., dated Mar. 31, 2023 (‘‘Schwab Letter II’’) at 6, 36; Ryan Kwiatkowski, Chairman of the Board, and James Toes, President & Chief Executive Officer, Security Traders Association, dated Apr. 3, 2023 (‘‘STA Letter’’) at 8; Adam Nunes, Hudson River Trading LLC, dated Mar. 31, 2023 (‘‘Hudson River Letter’’) at 2; Joanna Mallers, Secretary, FIA Principal Traders Group, dated Mar. 31, 2023 (‘‘FIA PTG Letter II’’) at 4–5; BlackRock Letter at 12. See also infra section V.C.1.a. for a discussion of comments received on the accelerated implementation of the odd-lot information definition. 112See FIA PTG Letter II at 4–5; Hudson River Letter at 2. 113See FIA PTG Letter II at 4–5. 114Schwab Letter II at 36. 115See infra section VI.C. 116See infra section V.B.3.a. 117See Securities Exchange Act Release Nos. 96943 (Dec. 14, 2022), 88 FR 3786 (Jan. 20, 2023) (proposal to amend rule 605 of Regulation NMS) (‘‘Rule 605 Proposal’’); 96945 (Dec. 14, 2022), 88 FR 128 (Jan. 3, 2023) (proposal to adopt a new rule under Regulation NMS that would enhance competition for the execution of marketable orders of individual investors) (‘‘OCR Proposal’’); and 96946 (Dec. 14, 2022), 88 FR 5440 (Jan. 27, 2023) (proposal to establish Commission rule-based best execution standards) (‘‘Best Execution Proposal’’) (together, with the Proposing Release, the ‘‘EMS Proposals’’). The Rule 605 Proposal was adopted on Mar. 6, 2024. See Rule 605 Amendments, supra note 10. 118See, e.g., Letters from Thom Tillis, Bill Hagerty, Mike Crapo, Cynthia Lummis, and Kevin Cramer, United States Senate, dated Jan. 20, 2023 (‘‘Tillis et al. Letter’’); Ellen Greene, Managing Director, Equity and Options Market Structure, Securities Industry and Financial Markets Association, dated Feb. 8, 2023 (‘‘SIFMA Letter I’’); Joanna Mallers, Secretary, FIA Principal Traders Group, dated Feb. 15, 2023 (‘‘FIA PTG Letter I’’); Hope M. Jarkowski, General Counsel, NYSE Group, Inc., dated Mar. 13, 2023 (‘‘NYSE Letter I’’); John A. Zecca, Executive Vice President, Global Chief Legal, Risk & Regulatory Officer, Nasdaq, Inc., dated Mar. 30, 2023 (‘‘Nasdaq Letter I’’); Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities, dated Mar. 31, 2023 (‘‘Citadel Letter I’’); Adrian Griffiths, Head of Market Structure, MEMX LLC, dated Mar. 31, 2023 (‘‘MEMX Letter’’); Mehmet Kinak, Vice President and Global
Head of Equity Trading, and Jonathan Siegel, Vice President and Managing Legal Counsel (Legislative & Regulatory Affairs), T. Rowe Price Associates, Inc., dated Mar. 31, 2023 (‘‘T. Rowe Price Letter’’); Bill Foster, French Hill, Henry Cuellar, Bill Huizenga, Wiley Nickel, Andy Barr, Ritchie Torres, Ann Wagner, Brittany Pettersen, Dan Meuser, Josh Gottheimer, Mike Flood, Vicente Gonzalez, Byron Donalds, Mike Quigley, Michael V. Lawler, David Scott, Andrew R. Garbarino, Gregory W. Meeks, Monica De La Cruz, Sean Casten, Scott Fitzgerald, Bradley S. Schneider, Erin Houchin, Jim Himes, Young Kim, Steven Horsford, Ralph Norman, Gwen Moore, Tom Emmer, Marc Veasey, and Zach Nunn, United States House of Representatives, dated Sept. 26, 2023 (‘‘Foster et al. Letter’’). See also Form Letter Type E, of which 14 comments were received, Form Letter Type F, of which 1,703 comments were received, and Form Letter Type G, of which 652 comments were received, available at https:// www.sec.gov/comments/s7-30-22/s73022.htm. 119See Letter from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, dated Oct. 13, 2023 (‘‘IEX Letter III’’) at 3–5 (explaining how adoption of the amendments to rule 605 should not delay adoption of the access fee cap and minimum increment amendments, and stating, ‘‘the premise that Rule 605 updates must be a precondition to any other changes looks more like a calculated stall than an argument for careful, reasoned decision making’’). 120See, e.g., T. Rowe Price Letter at 3; BlackRock Letter at 17; FIA PTG Letter II at 2; Dimensional Letter at 1, 3; State Street Letter at 1–2; Letters from Jameson Schriber, Managing Director, Goldman Sachs & Co. LLC, dated Mar. 31, 2023 (‘‘Goldman Sachs Letter’’) at 8–9; Kirsten Wegner, Chief Executive Officer, Modern Markets Initiative, dated Mar. 24, 2023 (‘‘MMI Letter’’) at 2; William Capuzzi, Chief Executive Officer, Apex Fintech Solutions, Inc., dated Mar. 31, 2023 (‘‘Apex Letter’’) at 14, 19; Michael Markunas, Deputy General Counsel, Chief Compliance Officer, B. Riley Securities, Inc., dated Mar. 31, 2023 (‘‘B. Riley Letter’’) at 1; Kristen Malinconico, Director, Center for Capital Markets Competitiveness, U.S. Chamber of Commerce, dated Mar. 31, 2023 (‘‘Chamber of Commerce Letter’’) at 2; Ellen Greene, Managing Director, Equity and Options Market Structure, Securities Industry and Financial Markets Association, dated Mar. 31, 2023 (‘‘SIFMA Letter II’’) at 2, 22–23; William C. Thum, Managing Director and Assistant General Counsel, Securities Industry and Financial Markets Association Asset Management Group, dated Mar. 31, 2023 (‘‘SIFMA AMG Letter I’’) at 2; Peter D. Stutsman, Global Head of Equity Trading, and Timothy J. Stark, Head of Equity Markets and Transaction Research, The Capital Group increments is based on round lots.107 Therefore, odd-lot information will not have an impact on determining minimum pricing increments under Rule 612. Further, for the reasons discussed below, the
interaction of the reduction in tick size and the MDI Rules’ round lot definition will likely not have a material impact on the NBBO of affected stocks since only the most exceptionally liquid stocks would have prices over $250 and a TWAQS equal to or less than $0.015.108 Therefore, it is not necessary to postpone amending the minimum pricing increments until data is analyzed using the MDI Rules’ round lots. In addition, the dissemination of odd￾lot information in conjunction with the MDI Rules’ round lot sizes will increase transparency about better priced orders and therefore should be implemented within a similar time frame.109 Odd-lot information will be provided for all NMS stocks, not just those NMS stocks that may be assigned a smaller round lot. As discussed below, the number of NMS stocks that may be assigned a smaller round lot as of November 30, 2023 is 163 NMS stocks.110 Therefore, while the MDI Rules’ round lot sizes will provide transparency about some better priced orders in higher priced stocks, they will not enhance transparency about those orders that continue to be defined as odd-lots and will not increase transparency for NMS stocks priced at $250 or less. This transparency is important for investors as it will enhance their ability to assess the current pricing in the market for certain NMS stocks. Therefore, the odd￾lot information definition and the round lot definition each represents important, but different information that will enhance the usefulness of quotation information. Some commenters recommended implementing the round lot definition but not the odd-lot information definition,111 stating that implementing odd-lot information would be burdensome on the industry,112 or would delay the implementation of the round lot definition by increasing the development work needed to be performed by the industry,113 or that implementation of the odd-lot information definition ‘‘could lead investors to expect prices that are not available.’’ 114 For the reasons discussed above, the implementation of both of these definitions is important to enhancing transparency for investors. The Commission has provided more time for implementing these data elements to accommodate the systems changes that will be necessary, therefore lessening implementation and development burdens on the industry.115 Further, as discussed below, market participants may decide to provide information to their customers about the changes that are being implemented, such as how to understand the different prices, and how the changes may impact their order entry requirements. Investor notification and education can help investors understand the operation and impact of these data elements.116
II. Equity Market Structure Initiatives
and the Regulation NMS Proposal In December 2022, the Commission issued three other proposals related to separate aspects of equity market structure and Regulation NMS.117 A number of commenters provided comments on all four EMS Proposals jointly.118 One commenter stated that adoption of the Rule 605 Proposal is not a prerequisite to adoption of the other equity market structure proposals.119 However, some commenters stated that the Commission should consider an incremental approach and stagger the implementation of the four EMS Proposals because of the extent to which the proposed changes could impact the market and investors.120 Some

Companies, Inc., dated Mar. 31, 2023 (‘‘Capital Group Letter’’) at 2, 5; Ann Wagner, United States House of Representatives, dated Nov. 28, 2022 (‘‘Wagner Letter’’) at 2. 121See, e.g., Letters from Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities, dated Mar. 31, 2023 (‘‘Equity Market Structure Citadel Letter’’) at 21; Ellen Greene, Managing Director, Equities & Options Market Structure, and Joseph Corcoran, Managing Director, Associate General Counsel, Securities Industry and Financial Markets Association, dated Aug. 24, 2023 (‘‘SIFMA Letter III’’) at 3; Steven M. Greenbaum, Senior Vice President, General Counsel, TradeStation Securities, Inc., dated Mar. 30, 2023 (‘‘TradeStation Letter’’) at 7; Gregory Davis, Managing Director and Chief Investment Officer, and Matthew Benchener, Managing Director, Personal Investor, The Vanguard Group, Inc., dated Mar. 31, 2023 (‘‘Vanguard Letter’’) at 2; Michael Camacho, Chief Executive Officer, Wealth Management Solutions, George C.W. Gatch, Chief Executive Officer, J.P. Morgan Asset Management, and Jason E. Sippel, Chief Executive Officer, J.P. Morgan Securities LLC, JPMorgan Chase & Co., dated Mar. 31, 2023 (‘‘JPMorgan Letter’’) at 2; Jirˇı´ Kro´l, Deputy Chief Executive Officer, Global Head of Government Affairs, Alternative Investment Management Association, dated Mar. 31, 2023 (‘‘AIMA Letter’’) at 3; John L. Thornton, Co-Chair, Hal S. Scott, President, and R. Glenn Hubbard, Co-Chair, Committee on Capital Market Regulation, dated Mar. 31, 2023 (‘‘CCMR Letter’’) at 46; Douglas A. Cifu, Chief Executive Officer, Virtu Financial, Inc., dated Mar. 30, 2023 (‘‘Virtu Letter II’’) at 4; Andrew M. Saperstein, Co-President, Morgan Stanley, dated Mar. 31, 2023 (‘‘Morgan Stanley Letter’’) at 2–3, 6 and 7; Steve Quirk, Chief Brokerage Officer, Robinhood Markets, dated Mar. 31, 2023 (‘‘Robinhood Letter’’) at 46; MFA Letter at 14; FIA PTG Letter II at 2, 4, 7; NYSE Letter I at 10–11; SIFMA Letter II at 11, 23; State Street Letter at 3; Chamber of Commerce Letter at 1; STA Letter at 10– 11; T. Rowe Price Letter at 3; Verret Letter I at 1, 5, 11; MMI Letter at 2–3; BlackRock Letter at 17; Capital Group Letter at 5; UBS Letter at 1–2; Foster et al. Letter at 1, 2; Fidelity Letter at 2, 5. 122See, e.g., Letters from David Howson, Executive Vice President, Global President, Cboe Global Markets, Nathaniel N. Evarts, Managing Director, Head of Trading, Americas, State Street Global Advisors, Kimberly Russell, Market Structure Specialist, Global SPDR Business, State Street Global Advisors, Mehmet Kinak, Global Head of Equity Trading, T. Rowe Price, Todd Lopez, Americas Head of Execution Services, UBS Securities LLC, and Douglas A. Cifu, Chief Executive Officer, Virtu Financial Inc., dated Mar. 24, 2023 (‘‘Cboe, State Street, et al. Letter’’) at 1– 2, 3; Michelle Bryan Oroschakoff, Managing Director, Chief Legal Officer, LPL Financial LLC, dated Mar. 31, 2023 (‘‘LPL
Financial Letter’’) at 4; Schwab Letter II at 6, 37; UBS Letter at 1–2; Apex Letter at 14–15; MFA Letter at 6; SIFMA Letter II at 11, 22; SIFMA AMG Letter I at 2; T. Rowe Price Letter at 3; Vanguard Letter at 2, 7; JPMorgan Letter at 2; AIMA Letter at 3; CCMR Letter at 46; UBS Letter at 1–2, 10; Virtu Letter II at 4; Foster et al. Letter at 1, 2; Capital Group Letter at 5; Morgan Stanley Letter at 2, 6–7; Fidelity Letter at 2, 5, 27; Letter from Ann Wagner, Andrew R. Garbarino, Frank D. Lucas, Bill Huizenga, Tom Emmer, Dan Meuser, Zach Nunn, Pete Sessions, French Hill, Bryan Steil, Michael V. Lawler, Erin Houchin, United States House of Representatives, dated June 27, 2024 (‘‘Wagner et al. Letter’’). Some commenters suggested adopting only the Rule 605 Amendments and portions of the Regulation NMS Proposal and then evaluating the impact of those changes on the market. See Letter from Melanie Ringold, Head of Legal, Americas, and Will Geyer, Global Head of Capital Markets, Invesco Ltd., dated Mar. 31, 2023 (‘‘Invesco Letter’’) at 2, 5; Hudson River Letter at 1– 2; TradeStation Letter at 7. 123See, e.g., Letters from Barbara Comstock, Executive Director, American Consumer & Investor Institute, dated May 20, 2024 (‘‘ACII Letter II’’) at 1 and 3; Ellen Greene, Managing Director, Equities & Options Market Structure, SIFMA, and Joseph Corcoran, Managing Director, Associate General Counsel, SIFMA, dated 14, 2024 (‘‘SIFMA Letter IV’’); Ellen Greene, Managing Director, Equities & Options Market Structure, SIFMA, Joseph Corcoran, Managing Director and Associate General Counsel, SIFMA, William C. Thum, Managing Director and Associate General Counsel, dated Aug. 13, 2024 (‘‘SIFMA AMG Letter II’’) at 1–2; Thomas H. Merritt, Deputy General Counsel, Virtu Financial, Inc., dated June 21, 2024 (‘‘Virtu Letter III’’). See also Letters from Dan Meuser, Ann Wagner, Frank Lucas, Pete Sessions, Bill Huizenga, French Hill, Andrew Garbarino, Young Kim, Byron Donalds, Michael V. Lawler, Zach Nunn, United States House of Representatives, dated June 27, 2024 (‘‘Meuser et al. Letter’’) at 2; Michael V. Lawler, United States House of Representatives, dated July 9, 2024 (‘‘Lawler Letter’’) at 1; Wagner et al. Letter at 1–2. 124See State Street Letter at 3. 125See supra notes 121–124 and accompanying text. See also supra note 104. 126See supra note 122. 127Although the amendments adopted in this release are not dependent on the implementation of the Rule 605 Amendments, the amendments adopted in this release will enhance the usability of information in the recently amended rule 605 reports. See infra section VII.D.6.a.ii. 128See Rule 605 Amendments, supra note 10. commenters suggested implementing only some of the proposed equity market structure changes, such as the Rule 605 Amendments or portions of the Regulation NMS Proposal.121 Some commenters stated that the Rule 605 Proposal should be implemented first and that data from the changes implemented in the Rule 605 Proposal
should be analyzed to assess whether the changes proposed in the Regulation NMS Proposal should be made.122 Some commenters stated that, in light of the Commission’s approval of the amendments to rule 605, the Commission should defer or suspend action on the Regulation NMS Proposal (and the two remaining EMS Proposals) and re-evaluate whether to proceed after the amendments to rule 605 have been implemented and the data collected following implementation has been analyzed.123 One commenter suggested implementing the round lot and odd-lot information definitions after implementation of the Rule 605 Proposal, and thereafter pausing to assess the impact of the changes on the markets.124 The Commission disagrees with comments urging delayed implementation of the Regulation NMS Proposal, either in its entirety or portions of it, as delaying these amendments will delay significant benefits for investors.125 The amendments adopted in this release revise several provisions of Regulation NMS to benefit investors. The Commission is adopting amendments to Rule 612 that will benefit investors and other market participants by allowing certain NMS stocks to be priced in increments that are smaller than the preexisting rule allowed, which will lower transaction costs and introduce greater competition on price into the market. The adopted amendments to Rule 610 will lower costs for investors and other market participants by reducing the access fee caps and will help to address distortions in the market associated with the preexisting fee caps. Additionally, the amendments will require all exchange fees charged and rebates paid for the execution of an order to be determinable at the time of execution, allowing investors and other market participants the ability to know with certainty the costs of their transactions at the time of the trade and to allow investors to more readily request details about the fees and rebates applicable to their orders. Accelerating the implementation of the MDI Rules’ round lot and odd-lot information definitions will provide investors and other market participants that use SIP data with transparency about better priced quotes and orders that are available in the market but only visible to subscribers of exchange proprietary data feeds sooner than originally planned. The amendments provide important investor benefits, which are discussed throughout. Therefore, the Commission is not delaying adopting the amendments. With respect to the Rule 605 Amendments, the Commission does not agree with commenters that stated that amended rule 605 data must be analyzed before adoption of the changes in this release.126 The amendments adopted in this release are not dependent on rule 605 data nor is the data from rule 605 reports necessary before the Commission makes changes to better protect investors and benefit the markets more broadly.127 While the Rule 605 Amendments will bring improvements to disclosures for order executions of NMS stocks,128
the Regulation NMS amendments address other structural concerns relating to investors’ trading and the lack of transparency in the national market system. For example, quoted spreads for NMS stocks could not get tighter than $0.01 under preexisting Rule 612 for all quotes and orders in NMS stocks that were priced equal to, or greater than, $1.00 per share. The Commission disagrees with the commenter that stated that the Commission should implement the

129See State Street Letter at 3.
130See State Street Letter at 3.
131See Rule 605 Amendments, supra note 10, at 26482 (stating, ‘‘Rule 605’s price improvement statistics that are relative to the best available displayed price will not be required to be reported until six months after odd-lot order information needed to calculate the best available displayed price is made available pursuant to an effective national market system plan.’’). 132See infra section VII.D.6.a.iii (stating that the Commission did not rely on rule 605 data in its analyses in the Proposing Release and in this release). 133See id. The Commission also has considered the interaction of the compliance dates of the adopted amendments with the compliance date of the Rule 605 Amendments. See infra section VI;
section VII.D.6.b.
134See Citadel Letter I at 29.
135See, e.g., NYSE, Schwab, and Citadel Letter at 2; STA Letter at 4, 10–11; T. Rowe Price Letter at 3; RBC Letter at 2 and 5; Nasdaq Letter I at 1, 6; Dimensional Letter at 1–2; FIA PTG Letter II at 2; Schwab Letter II at 3, 37; Apex Letter at 14–15, 19; JPMorgan Letter at 2–3; Chamber of Commerce Letter at 2; BlackRock Letter at 3, 17; MMI Letter at 2–3, 9; B. Riley Letter at 2; Capital Group Letter at 5; Letters from Ari Rubenstein, CEO, GTS Securities LLC, dated Mar. 31, 2023 (‘‘GTS Letter’’) at 4, 9; Jatin Suryawanshi, Managing Director, Head of Global Quantitative Strategies, and Anna Ziotis Kurzrok, Managing Director, Head of Market Structure, Jefferies, LLC, dated May 2, 2023 (‘‘Jefferies Letter’’) at 1. See also Letters from Patrick McHenry, French Hill, Frank Lucas, Pete Sessions, Bill Posey, Blaine Luetkemeyer, Bill Huizenga, Ann Wagner, Andy Barr, Roger Williams, Tom Emmer, Barry Loudermilk, Alexander X. Mooney, Warren Davidson, John Rose, Bryan Steil, William Timmons, Ralph Norman, Dan Meuser, Scott Fitzgerald, Andrew R. Garbarino, Young Kim, Byron Donalds, Mike Flood, Michael V. Lawler, Zach Nunn, Monica De La Cruz, Erin Houchin, and Andy Ogles, United States House of Representatives, dated Sept. 26, 2023 (‘‘McHenry et al. Letter’’) at 2; Ronald C. Parker, President and CEO, National Association of Securities Professionals, dated Feb. 28, 2023 (‘‘NASP Letter’’) at 4; State Street Letter at 2. 136See, e.g., SIFMA Letter I at 1; SIFMA Letter II at 3, 8–9, 11, 12–13; SIFMA AMG Letter I 4–5; GTS Letter at 4–5; Hudson River Letter at 1; UBS Letter at 2; NYSE, Schwab, and Citadel Letter at 1; Citadel Letter I at 2, 28–29; Schwab Letter II at 2– 3, 37; Virtu Letter II at 5, 19–20, 31–35, 55–57; MMI Letter at 2; Nasdaq Letter I at 6–7; Invesco Letter at 2; Goldman Sachs Letter at 3; Robinhood Letter at 7, 22, 24, 42, 44; Apex Letter at 14, 15; McHenry et al. Letter at 1, 2; CCMR Letter at 46; Chamber of Commerce Letter at 3; Equity Market Structure Citadel Letter at 13–14; Letters from JJ Kinahan, President, Tastytrade, Inc., dated Mar. 30, 2023 (‘‘Tastytrade Letter’’) at 2; Jason Clague, Managing Director, Head of Operations, Charles Schwab & Co., dated Mar. 22, 2023 (‘‘Schwab Letter I’’) at 2; Eric J. Pan, President and CEO, and Susan Olson, General Counsel, Investment Company Institute, dated Aug. 17, 2023 (‘‘ICI Letter II’’) at 2–3, 7–9; Mary Lou H. Ivey, Chairman of the Boards and Independent Trustee, David J. Urban, Independent Trustee, and Theo H. Pitt, Jr., Independent Trustee, Independent Trustees of ETF Opportunities Trust and World Funds Trust, dated Mar. 31, 2023 (‘‘Independent Trustees Letter’’) at 1–2; Stephen John Berger, Managing Director, Global Head of Government & Regulatory Policy, Citadel Securities, dated Dec. 5, 2023 (‘‘Citadel Letter II’’) at 1, 10; Christopher A. Iacovella, President & Chief Executive Officer, American Securities Association, dated Mar. 31, 2023 (‘‘ASA Letter’’) at 2, 3; Seth A. Miller, President,
Cambridge Investment Research, Inc. dated Mar. 31, 2023 (‘‘Cambridge Letter’’) at 3; Nicolas Morgan, Founder and President, Investor Choice Advocates Network, dated Mar. 31, 2023 (‘‘ICAN Letter’’) at 2; Rebekah Goshorn Jurata, General Counsel, American Investment Council, dated Aug. 8, 2023 (‘‘AIC Letter’’) at 2, 5, 10; James Angel, Associate Professor of Finance, Georgetown University, dated Mar. 31, 2023 (‘‘Angel Letter’’) at 2; see also Letter from Jonathan Kanter, Assistant Attorney General, Doha Mekki, Principal Deputy Assistant Attorney General, Maggie Goodlander, Deputy Assistant Attorney General, David Lawrence, Policy Director, Karina Lubell, Chief, Competition Policy & Advocacy Section, Ihan Kim, Attorney Advisor, Competition Policy & Advocacy
Section, and Owen M. Kendler, Chief, Financial
Services, Fintech & Banking Section, United States Department of Justice, dated Apr. 11, 2023 (‘‘DOJ Letter’’) at 6. 137See McHenry et al. Letter at 2. 138See infra section VII.C. 139See infra sections VII.C and VII.D.6. 140The OCR Proposal and the Best Execution Proposal Release mentioned by commenters remain at the proposal stage. To the extent that the Commission takes final action on either of those proposals, the baseline in each of those subsequent rulemakings will reflect the regulatory landscape that is current at that time. See infra section VII.C, note 1047. 141The CAT database contains confidential market information. See, e.g., Securities Exchange round lot and odd-lot information definitions after the implementation of the Rule 605 Amendments and then wait to assess the effects of these changes.129 The commenter stated that it supported the round lot and odd-lot information definitions but stated, without providing details or any other support, that ‘‘these changes could have unintended impacts on price discovery, routing complexity, and trading costs.’’ 130 The Commission adopted the definitions in 2020 to provide transparency about better priced orders that are available in the market but are not fully transparent in NMS information. These definitions will result in the provision to market participants of important information about the prices at which market participants are willing to trade and therefore will enhance price discovery. Market participants may have to assess their order routing decisions based on this enhanced transparency of better priced orders that are available in the market.131 As discussed below, the data analysis performed by the Commission and other market participants to assess changes in minimum pricing increments and the access fee caps were not derived from rule 605 reports.132 While one commenter stated that rule 605 data should be used to assess the amendments adopted in this release, the Commission has utilized relevant and sufficient data other than rule 605 data that fully and robustly support the amendments.133 One commenter states that if this proposal were to be finalized along with the amendments to Rule 605, ‘‘it appears that market participants and regulators would be unable to accurately assess the true impact of the market structure changes contained in this Proposal, precluding an ‘apples-to￾apples’ before-and-after comparison.’’ 134 However, market participants have other data with which to analyze the effects of these amendments. Some commenters stated that the EMS Proposals would have an impact on each other.135 Some commenters stated that the EMS Proposals should have been analyzed together to assess how the proposals would relate to, and operate with, each other.136 One group of members of Congress recommended that no equity market structure rule ‘‘should be finalized or implemented’’ until the Commission ‘‘[c]onduct[s] a comprehensive cost-benefit analysis of the aggregate impact of
[these rules] and seek[s] public comment on this analysis[,]’’ and the Commission proposes ‘‘a reasonable, workable, and staggered schedule for public comment on the adoption and implementation of the proposals, considering their overlapping nature, significant compliance and operational burdens, and if they may be insurmountable for smaller or emerging firms.’’ 137 As discussed below in the economic analysis, the Commission uses as a baseline the world as it exists at the time of adoption, including adopted rules but not proposed rules.138 Each release, like this release and the Rule 605 Amendments (which were adopted prior to the amendments in this release), explains fully the rationale for the particular rulemaking and includes a robust economic analysis of the rules being adopted, including the possible economic effects that commenters raised with regard to specific interactions between the amendments and the Rule. In addition, comments on how the adoption of the amendments should affect the timing or sequence of the other EMS Proposals will be considered if and when those rules are adopted. The economic analysis considers potential economic effects arising from any overlap in compliance dates between these amendments and other recent amendments.139 Similarly, the effects of the amended rules are measured against the existing regulatory baseline, which includes recently adopted rules.140 Commenting on the Proposing Release together with the other EMS Proposals, some commenters requested that the Commission publicly release anonymized subsets of CAT data 141

Act Release No. 67457 (Jul. 18, 2012), 77 FR 45722, 45782 (Aug. 1, 2012) (stating that maintaining the confidentiality of customer and other information reported to CAT ‘‘is essential’’ and that ‘‘[w]ithout adequate protections, market participants would risk the exposure of highly-confidential information about their trading strategies and positions’’); see also Securities Exchange Act Release No. 84696 (Nov. 15, 2016), 81 FR 84696 (Nov. 23, 2016). 142See, e.g., SIFMA Letter I at 1–2, 3–4; Letters from Thomas M. Merritt, Deputy General Counsel, Virtu Financial, Inc., dated Feb. 24, 2023 (‘‘Virtu Letter I’’) at 1, 2; SIFMA Letter II at 2–3, 11, 22; SIFMA AMG Letter I at 5; Schwab Letter II at 3– 4; T. Rowe Price Letter at 3; Chamber of Commerce Letter at 2–3; Robinhood Letter at 8; Equity Market Structure Citadel Letter at 16–17; Cambridge Letter at 4; Jefferies Letter at 1; SIFMA AMG Letter II at 5–7; and SIFMA Letter IV at 6. 143See SIFMA Letter I at 7 (‘‘Regulation NMS:
Minimum Pricing Increments, Access Fees, and Transparency of Better Priced Orders—The following tables/figures within the Proposal use CAT data: none.’’). The Commission responds to specific comments on releasing the CAT data used in the tables and figures of the specific EMS Proposals in the relevant adopting release, where appropriate. See Rule 605 Amendments, supra note 10. 144See, e.g., Proposing Release, supra note 11, at 80316, 80340–41. A commenter identifies this limited use of CAT data in the Proposing Release but does not identify specific additional information the Commission should provide. See Equity Market Structure Citadel Letter at 16–17. 145See 17 CFR 242.612. 146As discussed in the Proposing Release, the Commission granted exemptions from Rule 612 to various national securities exchanges’ retail liquidity programs (‘‘RLPs’’) as a way to allow them to compete with over-the-counter (‘‘OTC’’) market maker sub-penny price improvement. See Proposing Release, supra note 11, at 80271. Under the RLPs, exchanges can accept and rank certain quotes and orders from certain participants in sub￾penny increments as small as $0.001. 147See Proposing Release, supra note 11, at 80272–80273. 148See Proposing Release, supra note 11, at 80280. 149See infra section VII.D.1.b, table 3. 150See, e.g., The Tick-Constrained Stock Problem by Phil Mackintosh (Jan. 20, 2022), available at http://www.nasdaq.com/articles/the-tick￾constrained-stock-problem) (‘‘Nasdaq Paper’’). See also Petition for Rulemaking to Amend Rule 612 of Regulation NMS to Adopt Intelligent Tick-Size Regime, dated Dec. 16, 2019, submitted by John A. Zecca, Executive Vice President, Chief Legal Officer & Chief Regulatory Officer, Nasdaq Inc. available at https://www.sec.gov/rules/petitions/2019/petn4- 756.pdf (‘‘Nasdaq Intelligent Tick Proposal’’); The Impact of Tick-constrained Securities on the U.S. Equity Market (available at http://www.nyse.com/ publicdocs/Tick_Constrained_Stocks.pdf) (‘‘NYSE White Paper’’) (no date available); and Cboe Proposes Tick-Reduction Framework to Ensure Market Structure Benefits All Investors (available at https://www.cboe.com/insights/posts/cboe￾proposes-tick-reduction-framework-to-ensure￾market-structure-benefits-all-investors/) (‘‘Cboe Proposal’’). 151See Proposing Release, supra note 11, at 80274–80278. 152See Letters from Angelo Evangelou, Cboe Global Markets, Inc., dated Feb. 28, 2023 (‘‘Cboe Letter I’’); Patrick Sexton, EVP, General Counsel & Corporate Secretary, Cboe Global Markets, Inc., dated Mar. 31, 2023 (‘‘Cboe Letter II’’) at Appendix A. See also Letter from Hope M. Jarkowski, General Counsel, NYSE Group, Inc., dated Mar. 27, 2023 Continued used in connection with the tables and figures in the EMS Proposals’ economic analyses.142 In the Proposing Release, unlike certain of the other EMS Proposals, CAT data was not used in any tables and figures.143 Rather, the Proposing Release used CAT data to determine the numbers of affected broker-dealers
in the baseline and compliance cost discussion in the economic analysis, as well as to determine statistics in a reasonable alternative to the proposed amendment that would have imposed a minimum pricing increment for trades.144 The CAT information used in this adopting release is narrower still. Specifically, the Commission uses CAT information, consisting of lists of firm names, including firm identifier numbers and account type information, only to determine the numbers of affected firms. The Commission is not releasing anonymized versions of the CAT information used in this release because releasing an anonymized list of firm names would provide no meaningful information beyond the total number of affected firms, which is the same information provided in this release. The Commission described in the Proposing Release and describes in this release the CAT data and methodology used in connection with its estimates.
III. Final Rule 612 of Regulation NMS—
Minimum Pricing Increment
Rule 612 of Regulation NMS establishes minimum pricing increments (also known as minimum price variations or tick sizes) for quotations and orders in NMS stocks. Specifically, preexisting Rule 612 stated that ‘‘[n]o national securities exchange, national securities association, alternative trading system, vendor, or broker or dealer shall display, rank, or accept from any person a bid or offer, an order, or an indication of interest in any NMS stock priced in an increment smaller than $0.01 if that bid or offer, order, or indication of interest is priced equal to, or greater than, $1.00 per share.’’ 145 Preexisting Rule 612(b) had similar language that applied to bids, offers, orders, and indications of interest in any NMS stock priced less than $1.00 per share and specified that the minimum pricing increment could not be smaller than $0.0001. Preexisting Rule 612 of Regulation NMS did not establish or include minimum pricing increments for transactions.146 A. Issues Raised in the Existing Market Structure Related to Tick Sizes The Proposing Release contains an extensive discussion of the development and the consideration by the Commission and market participants of Rule 612 since its adoption.147 Since the adoption of Rule 612, there has been a marked increase in the trading volume of NMS stocks that would likely be priced with tighter spreads if their pricing was not constrained by the uniform $0.01 minimum pricing increment required by preexisting Rule 612 for quotes and orders all NMS stocks priced equal to, or greater than, $1.00 per share. Easing constraints on ticks for these NMS stocks will reduce transaction costs for market participants, including investors, and allow prices to be determined in a more competitive manner. In other words, the number and volume of NMS stocks that could benefit from the ability to quote in a minimum pricing increment that is smaller than $0.01 (i.e., sub-pennies) has grown. In the Proposing Release, the Commission considered data to evaluate and determine which NMS stocks, by number and by volume, would benefit from a reduced minimum pricing increment for quotes and orders that would allow for tighter spreads. While the Commission could not estimate the number of stocks that would have a TWAQS of $0.008 or less due to the preexisting Rule 612 requirement that all orders priced equal to greater than $1.00 per share have a $0.01 minimum pricing increment, the Commission could estimate that 1,707 stocks, which represented approximately 64% of share volume and 37.9% of dollar volume in January through May 2022, had TWAQS that were less than $0.016.148 Additionally, 2,648 stocks, which represented approximately 17.9% of share volume and 22.3% of dollar volume in January through May 2022, traded with a spread that was greater than $0.016 and less than or equal to $0.04. More recently, the Commission analyzed NMS stocks in 2023 and identified 2,420 NMS stocks that had a TWAQS of $0.015 or less; these NMS stocks
represent about 74% of share volume and about 47% of dollar volume.149 Prior to the Proposing Release, certain market participants conducted data analyses on the effects of Rule 612 and concluded that a $0.01 minimum quoting increment may not be appropriate for all NMS stocks that are priced greater than or equal to $1.00.150 The Commission discussed these data analyses in the Proposing Release.151 One of these market participants, Cboe, submitted updated data analysis in two comment letters to the Proposing Release.152

(‘‘NYSE Letter II’’) (submitting for the record its paper entitled Price Improvement, tick harmonization & investor benefit (Aug. 22, 2022). This paper was described in the Proposing Release, supra note 11, at 80275; MEMX Letter, Appendix (submitting Tick-constrained Securities (Aug. 2021). This paper was described in the Proposing Release, supra note 11, at 80274. In the MEMX Letter, MEMX also submitted Tick-constrained Securities, The Tick Size Debate, Revisited (Jan.
2022) which analyzed a set of reverse splits on
certain low-priced ProShares exchange-traded products (‘‘ETPs’’) and finding that the tick￾constrained ETPs analyzed traded with significantly lower spreads post reverse split. This paper was described in the Proposing Release, supra note 11, at 80318. 153See infra section III.C.7.b. See also proposed Rule 612(a). 154See infra section III.C.7.a. See also proposed Rule 612(a). 155See proposed Rule 612(c). 156See proposed Rule 612(a). 157See Proposing Release, supra note 11, at 80273 (discussing the competitive dynamic among exchanges, ATSs and OTC market makers). 158Rule 612(b)(3) is the same as preexisting Rule 612(b). 159See Rule 612(a)(1). 160Some commenters suggested that the Commission consider wider quoting increments. See, e.g., Nasdaq Letter I; ASA Letter at 4; MEMX Letter at 20; Cboe, State Street, et al. Letter at 2; BIO Letter at 3; Invesco Letter at 3; Robinhood Letter at 39; Themis Letter at 5; Dimensional Letter at 2; and Letter from Tim Gately, Managing Director, Head of Equities Sales, Americas, Citigroup Global Markets, Inc., dated Mar. 31, 2023 (‘‘Citigroup Letter’’) at 5. The Commission is not adopting a wider quoting increment for NMS stocks or a subset of NMS stocks as part of these amendments. As discussed throughout this release, the Commission is amending Rule 612 to address issues that developed related to the constraint that results from the $0.01 minimum pricing increment. A wider quoting increment would not address these specific issues. 161See supra note 82. 162See, e.g., Form Letter Type A, of which 22 comments were received; Form Letter Type D, of which 255 comments were received; Form Letter Type G, of which 652 comments were received, available at https://www.sec.gov/comments/s7-30- 22/s73022.htm; IEX Letter I at 6; Letters from David Mechner, Chief Executive Officer, Pragma, LLC, dated Mar. 23, 2023 (‘‘Pragma Letter’’); Citigroup Letter at 4; MMI Letter at 3; Cboe, State Street, et al. Letter at 2; Nasdaq Letter I at 2; Managed Funds Letter dated March 30, 2023 at 11; letter from Joseph Scafidi, Global Head of Trading, and Carlos Oliveira, Head of Trading Analytics and Market Structure, Brandes Investment Partners, L.P., dated Mar. 23, 2023 (endorsed by Adam Conn, Director, Baillie Gifford (Overseas) Ltd. et al.) (‘‘Brandes Letter’’) at 1; Angel Letter at 5; TradeStation Letter; Vanguard Letter at 4; B. Riley Letter at 1; JPMorgan Letter at 4; and UBS Letter at 10. 163See, e.g., Form Letter Type D, of which 255 comments were received; Form Letter Type E, of which 14 comments were received; and Form Letter Type G, of which 652 comments were received, available at https://www.sec.gov/comments/s7-30- 22/s73022.htm; Letter from Bibambop RIP, dated B. Proposal To Amend Rule 612 The Commission proposed variable minimum pricing increments for quotes and orders for NMS stocks priced at, or greater than, $1.00 per share based on the TWAQS of a particular NMS stock. The Commission also proposed that the minimum pricing
increment for executions be the same as, and correlate to, the minimum pricing increment for quoting on all trading venues (i.e., on￾exchange and OTC), subject to certain exceptions. Specifically, the Commission proposed that the minimum pricing increments for quotations, orders and executions in NMS stocks that are priced equal to or greater than $1.00 per share would be variable and no smaller than: (1) $0.001 if the TWAQS153 for the NMS stock during the Evaluation Period 154 was equal to, or less than, $0.008; (2) $0.002, if the TWAQS for the NMS stock during the Evaluation Period was greater than $0.008 but less than, or equal to $0.016; (3) $0.005, if the TWAQS for the NMS stock during the Evaluation Period was greater than $0.016 but less than, or equal to, $0.04; and (4) $0.01 if the TWAQS for the NMS stock during the Evaluation Period was greater than $0.04.155 Further, as proposed, NMS stocks’ TWAQS would have been measured quarterly based on one month of trading data.156 In other words, it was proposed that the assignment of minimum pricing increments for the quoting and trading of NMS stocks priced equal to or greater than $1.00 per share be done on a quarterly basis. The Commission stated that it preliminarily believed that the proposed Rule 612 amendments would promote:
(1) fair and orderly markets and economically efficient executions, particularly for tick-constrained NMS stocks and retail order flow; and (2) fair competition and equal regulation between OTC market makers, exchanges, and ATSs that compete for retail liquidity by requiring that NMS stocks trade with the same minimum pricing increment regardless of venue (i.e., on or off-exchange).157 The Commission also stated that proposed Rule 612 would promote price discovery and price competition, particularly for tick-constrained stocks and retail order flow, by permitting the uniform quoting and trading of NMS stocks across trading venues, in finer increments, based on objective criteria. The Commission preliminarily believed that the proposed Rule 612 amendments would result in the pricing of quotes and orders being more in alignment with the principles of supply and demand.
C. Final Rule—Minimum Pricing
Increments for Orders Priced Equal to or Greater Than $1.00 per Share After considering comments, and analyzing additional data in response to those comments, the Commission is modifying and adopting the proposed amendments to Rule 612. As adopted, Rule 612(b)(2) provides that no national securities exchange, national securities association, ATS, vendor, or broker or dealer shall display, rank, or accept from any person a bid or offer, an order, or an indication of interest in any NMS stock in an increment smaller than required pursuant to either paragraph (i) or (ii) below if that bid or offer, order, or indication of interest is priced equal to or greater than $1.00 per share:
(i) $0.01, if the Time Weighted Average Quoted Spread for the NMS stock during the Evaluation Period was greater than, $0.015; or (ii) $0.005, if the Time Weighted Average Quoted Spread for the NMS stock during the Evaluation Period was equal to or less than $0.015. Rule 612(b)(3) provides that no national securities exchange, national securities association, alternative trading system, vendor, or broker or dealer shall display, rank, or accept from any person a bid or offer, an order, or an indication of interest in any NMS stock priced in an increment smaller than $0.0001 if that bid or offer, order, or indication of interest is priced less than $1.00 per share.158 Further, as amended, minimum pricing increments for quotes and orders will be assigned on a semiannual basis using 3-months of trading data to calculate each NMS stock’s TWAQS.159 Therefore, as adopted, a minimum pricing increment of either $0.01 or $0.005 will be assigned to each NMS stock for quotes and orders that are priced equal to or greater than $1.00 per share twice a year and will be operative for a six-month period.160 The amendment differs from the proposal because rather than adding three proposed smaller minimum pricing increments for quotes and orders ($0.005, $0.002, $0.001) to the current $0.01 increment, only one additional minimum pricing increment ($0.005) for NMS stocks that have a TWAQS of $0.015 or less will be added. In addition, the amendment differs from the proposal as it (1) does not include a minimum pricing increment for trades, (2) modifies the Evaluation Period, and (3) provides for an implementation period.

1. General Comments and Discussion
   The Commission received many comments on the proposal to amend Rule 612.161 Some commenters supported the need to amend Rule
   612.162 Many individual commenters
   generally supported the proposed amendments; 163 while some individual

Mar. 16, 2023; Letter from Binh Tran, dated Mar. 4, 2023; Letter from Jerry Pang, dated Mar. 4, 2023; Letter from Charlie Chen, dated Mar. 1, 2023; Letter from Daniel Song, dated Jan. 12, 2023; Letter from Deok Park, dated Dec. 26, 2023; and Letter from Clarissa West, dated Apr. 1, 2023. 164See, e.g., Form Letter Type H, of which 853 comments were received, available at https:// www.sec.gov/comments/s7-30-22/s73022.htm. 165See, e.g., Letter from Stephen W. Hall, Legal Director and Securities Specialist, Better Markets, Inc., dated Oct. 31, 2023 (‘‘Better Markets Letter II’’) at 3; SIFMA Letter II; Brandes Letter at 1; ICI Letter I; BlackRock Letter; B. Riley Securities Letter; JPMorgan Letter at 4; Cambridge Letter at 6; Invesco Letter at 3; UBS Letter at 10; Citigroup Letter at 4; TradeStation Letter at 6; letters from individuals, including the Form Letter Type D, of which 255 comments were received; Form Letter Type G, of which 652 comments were received; and Form Letter Type H, of which 853 comments were received, available at https://www.sec.gov/ comments/s7-30-22/s73022.htm. 166See ASA Letter at 4. 167See MEMX Letter at 9. 168See, e.g., SIFMA Letter II at 33; BlackRock Letter at 5; Citigroup Letter at 4; and MMI Letter at 5; UBS Letter at 10; Letter from Lawrence Harris, Ph.D., CFA, Professor of Finance and Business Economics, U.S.C. Marshall School of Business, dated Dec. 18, 2023 (‘‘Harris Letter’’) at 8. 169See Better Markets Letter II at 8. 170See, e.g., Form Letter Type A, of which 22 comments were received; Form Letter Type D, of which 255 comments were received; Form Letter Type E, of which 14 comments were received; Form Letter Type G, of which 652 comments were received; Form Letter Type I, of which 22 comments were received; Form Letter Type J, of which 15 comments were received; and Form Letter Type K, of which 22 comments were received, available at https://www.sec.gov/comments/s7-30- 22/s73022.htm. 171Letter from John dated Feb. 23, 2023. 172Letter from Nevin Varghese dated Dec. 26,
2022. 173See IEX Letter I at 6; Cboe, State Street, et al.
Letter at 2; Nasdaq Letter I at 14; MEMX Letter at 18; and Cboe Letter II at 3. 174See Capital Group Letter at 4; ICI Letter I at 5–6; Vanguard Letter at 4–5; Invesco Letter at 3; Schwab Letter II at 6; T. Rowe Price Letter at 4; Fidelity Letter at 14; Brandes Investment Letter dated March 31, 2023 at 2; Ontario Teachers, Alberta Investment, CalSTRS, CalPERS, Canada Pension, and Texas Retirement Letter dated Mar. 31, 2023 at 2 (‘‘Ontario Teachers et al. Letter’’); BlackRock Letter at 5; Dimensional Letter at 2; B. Riley Letter at 1; and Letter from Christopher P. Bowker Jr., Director of Global Equity Trading, Boston Partners Global Investors, Inc., Joe Mariano, Senior Vice President, Global Head of Trading, Calamos Advisors LLC, Melissa F. Hinmon, Director of Equity Trading, Glenmede Investment Management, Dan Royal, Global Head of Equity Trading, Janus Henderson Investors US LLC, dated Apr. 6, 2023 (‘‘Boston Partners, Calamos Advisors, Glenmede Investment, and Janus Henderson Letter’’); State Street Letter at 3; NYSE, Schwab, and Citadel Letter at 2; Letter from John Zhu, Head of Trading, Optiver US LLC, dated Mar. 15, 2023 (‘‘Optiver Letter’’) at 4; Pragma Letter at 1; Cboe, State Street, et al. Letter at 2; Letter from Milan Galik, Chief Executive Officer, Interactive Brokers Group, Interactive Brokers LLC, dated Mar. 30, 2023 (‘‘Interactive Brokers Letter’’) at 5; RBC Letter at 3; Morgan Stanley Letter at 3–4; JPMorgan Letter at 4– 5; Letter from at 2; Joe Wald, Managing Director & Co-Head of Electronic Trading, Eric Stockland, Managing Director, Global Markets, Brad A. Rothbaum, Managing Director & Head U.S. Global Markets, Chief Operating Officer & Head of the U.S. Branches, and Michael Forlenza, Managing Director & Head of U.S. Capital Markets Compliance, BMO Capital Markets Corp., dated Mar. 31, 2023 (‘‘BMO Letter’’); Brandes Investment Letter dated March 23, 2023 at 2; B Riley Letter at 1; Themis Letter; UBS Letter at 10; Citigroup Global Letter at 4–5; and Jefferies Letter at 3. 175See, e.g., BlackRock Letter at 6 and B. Riley Letter at 1. 176See Jefferies Letter. See also Proposing Release, supra note 11, at 80277 for a discussion of the MEMX request for exemption. 177See Proposing Release, supra note 11, at 80277 for a discussion of the MEMX request for exemption. 178See Jefferies Letter at 2. 179 Id. at 4. 180See, e.g., Cboe, State Street, et al. Letter at 2; letter from Carlo Passeri, Vice President Biotechnology Innovation Organization (‘‘BIO Letter’’), dated Mar. 30, 2023; and State Street Letter at 3; MMI Letter at 3–7. 181See Citigroup Letter at 6. With regard to the comment about an ‘‘off-ramp/kill-switch,’’ should the Commission observe trends detrimental to investors, the Commission could take appropriate action. 182See Citadel Letter II at 3. commenters agreed that Rule 612 should be amended but recommended that the proposal be modified.164 Broadly, many commenters stated that preexisting Rule 612 should be amended in order
to permit sub-penny quoting.165 One commenter stated that for those stocks that are tick-constrained ‘‘[t]he one-cent increment for quoting can make it difficult for liquidity providers to fill orders and often results in higher trading costs.’’ 166 Another commenter stated that tick-constrained stocks experience wider quoted spreads, which results in ‘‘significantly increased transaction costs for investors,’’ and that these securities generally have longer queues and trade with ‘‘outsized notional liquidity at the NBBO.’’ 167 Several commenters stated that the ‘‘one-size-fits-all’’ requirement in Rule 612 should be revisited.168 One commenter stated that Rule 612 impedes the ability of market participants to price some NMS stocks that would naturally be priced within the penny spread.169 The adopted minimum quoting increment of $0.005 will enable the targeted NMS stocks to be more naturally priced based on the principles of supply and demand within the penny spread. Generally, comments from individuals supported the proposal without any additional suggested changes.170 One commenter stated of the proposal, ‘‘[t]his means that the pricing of stocks will be more precise and accurate, ensuring that I can get the best possible price for my trades.’’ 171 Another commenter stated that ‘‘[a]llowing for sub-penny pricing will enable buyers to obtain lower prices from willing sellers and sellers to obtain higher prices from willing buyers, resulting in a more efficient market.’’ 172 Comments from other market participants, including exchanges,173 broker-dealers, and institutional investors 174 recommended modifying the proposal to Rule 612 to reduce the number of potential minimum quoting increments. Some commenters stated that further reduction of the minimum pricing increment for quotes and orders may be warranted for certain NMS stocks ‘‘in the future’’ but that a $0.005 increment should be implemented and studied before any further reductions.175 For the reasons discussed throughout, in response to commenters, the Commission is adopting amended Rule
612. Compared to the initial proposal,
the modified amendments will be easier for market participants to implement and adapt to. One commenter suggested that the Commission use its exemptive authority to reduce minimum pricing increments and access fees in a manner similar to that requested by MEMX.176 MEMX requested an increment of $0.005 for NMS stocks that are ‘‘tick-constrained’’ (defined by MEMX as stocks that trade with an average quoted spread of $0.011 or less).177 The commenter recommended this course of action as a means to gather data on sub-penny pricing increments to help determine whether, and to what degree, the proposed modifications were warranted.178 The commenter also stated that using an exemption to test a reduction of minimum pricing increments and the access fee caps could include an expiration and a ‘‘roll￾back’’ plan should unintended consequences become apparent.179 Other commenters recommended that the Commission reduce the minimum pricing increments for a sample of stocks so that data could be gathered and evaluated before changes were adopted on a more widespread basis.180 Finally, one commenter recommended that the Commission establish a ‘‘transparent structured process to evaluate whether proposed changes to minimum pricing increments and access fees are actually improving the execution experience’’ and that a ‘‘clearly articulated off-ramp/kill-switch to unwind these changes’’ be in place to return to current minimum pricing increments and the access fee caps.181 Another commenter stated that if the Commission adopted a modified amendment to Rule 612 that such modification should be re-proposed for public comment.182 An exemption, other temporary course of action, such as a pilot or sample reduction, or a re-proposal of the

183See, e.g., MEMX Letter, Pragma Letter; IEX Letter I; and Nasdaq Letter I. See infra section VII.D.1.b. 184See supra section III.A. 185See infra section VII.D.1.b.ii. 186See infra section VII.D.1.b.ii. 187See infra section VII.D.1.a. 188See, e.g., MEMX Letter at 15–16. See also note 219 and accompanying text. 189See, e.g., letters from Joshua Russell dated Dec. 27, 2022; Matthew Gayvin Mutman dated Mar. 7, 2023; Aswin Joy dated Mar. 7, 2023. 190See Letter from Joshua Russell dated Dec. 27,
2022. But see letter from Anonymous dated Apr. 1,
2023 (stating ‘‘[g]etting more precise increment should be easy enough with our modern computers. At the gas station I get charged down to the .000th place, so why shouldn’t our markets work the same? Seems fair to me.’’). 191Prior to decimalization, quotes and orders were made in increments that were fractions of a dollar, including 1⁄8, 1/16 and 1/32, which resulted in sub-penny pricing. 192See supra section III.A. 193One commenter stated that to the extent the minimum quoting increment is reduced, FINRA would need to update the Manning Rule (FINRA rule 5320 which protects customer limit orders by requiring a minimum amount of price improvement for a firm to execute an order on a proprietary basis while holding an unexecuted customer limit order—the minimum amount of price improvement is currently $0.01 for orders equal to or greater than $1) in an equivalent manner. See Citadel Letter I at
8. The compliance date of the adopted rule provides
sufficient time for FINRA to determine whether it would want to amend the Manning Rule in light of the amendments to Rule 612 and to file a proposed rule change pursuant to section 19(b) of the Exchange Act and rule 19b–4 thereunder. 194See Letter from Matthew Gayvin Mutman dated Mar. 7, 2023. The commenter suggested a uniform $0.001 minimum pricing increment for all NMS stocks. Comments related to the level of minimum pricing increment are addressed in the next section. 195See infra note 994 defining pennying. See also infra section VII.D.1 for additional discussion of this topic. 196See, e.g., Form Letter Type G Nasdaq Letter I; MFA Letter; Letter from Douglas Friedman, General Counsel, Tradeweb Markets Inc., dated Mar. 30, 2023 (‘‘Tradeweb Markets Letter’’); Virtu Letter II; State Street Letter; RBC Letter; Invesco Letter; ICI Letter I; Cboe Letter II; SIFMA Letter II; Vanguard Letter; JPMorgan Letter; Hudson River Letter; T. Rowe Price Letter at 4; Goldman Sachs Letter; Fidelity Letter; Citadel Letter I; Robinhood Letter; GTS Letter; BlackRock Letter; Citigroup Letter; Fidelity Letter at 11; Themis Letter at 3; and Tastytrade Letter at 20. 197See Regulation NMS Adopting Release, supra note 4, at 37551. 198See, e.g., MFA Letter at 11, State Street Letter at 3, and RBC Letter at 3. 199See, e.g., Nasdaq Letter I at 13; MFA Letter at 11, Virtu Letter II at 15, State Street Letter at 3, and RBC Letter at 3. adopted amendments is not warranted. The Commission and market participants already have provided data and analyses that support amending Rule 612 to address tick constraints.183 As discussed throughout this release, the adopted amendments to Rule 612 will allow NMS stocks that are experiencing tick constraints with the $0.01 minimum pricing increment to be priced more competitively (i.e., reduce quoted spreads) and reduce transaction costs for liquidity demanders. The amendments to minimum pricing increments are designed to appropriately address significant concerns related to Rule 612.184 One of the primary goals of the proposal and the adopted amendments is to alleviate tick constraints. Reducing the minimum quoting increment for quotes and orders to $0.005 for certain NMS stocks will enable such stocks to quote with tighter spreads, which in return reduces the transaction costs of investors.185 As discussed below, the Commission has conducted analysis to show that quoted and effective spreads are likely to decline such that costs of executing small and medium trades will likely decline.186 Further, Rule 612, as amended, while simplified compared to the proposal, continues to be designed to address constraint concerns with respect to those NMS stocks. Market participants and investors will be able to more easily adapt to the amended tick regime because they will only need to accommodate, and adjust for, one additional minimum pricing increment that is already familiar for a limited, readily discernable, group of NMS stocks.187 The $0.005
minimum pricing increment for quotes and orders, one of the three additional ticks proposed by the Commission, was widely supported by commenters.188 Price improvement on exchanges and ATSs often occurs through midpoint executions in an increment of $0.005. Accordingly, $0.005 is an appropriate increment to introduce smaller, sub-penny minimum pricing increments in the national market system for quotes and orders priced equal to or greater than $1.00. Some individual commenters did not support the proposal.189 One of those commenters stated that the minimum pricing increment for quotes and orders should be ‘‘based solely on that which can be spent in real life; no less than a single penny.’’ 190 Preexisting Rule 612 allowed quotes and orders in NMS stocks priced less than $1.00 per share to be accepted, ranked and displayed in an increment as small as $0.0001. Similarly, certain RLP Programs for national securities exchanges have been granted Commission exemptions to permit quotes and orders in NMS stocks priced equal to, or greater than, $1.00 per share to be accepted, ranked and displayed in an increment as small as $0.001. Sub-penny increments also existed in the market for many years, even prior to the adoption of Rule 612 in 2005.191 Sub-penny increments can allow market participants to better convey prices at which they are willing to trade, which can promote better price competition and lead to better price discovery. Further, as discussed above, sub-penny trading occurs frequently, whether at the midpoint or in other sub￾penny increments.192 Thus, sub-penny increments are not a novel concept. As discussed above, $0.005 is a common trading increment because of the use of midpoint orders under current Rule 612, and the ability to use such orders will not change under amended Rule 612. Nonetheless, the Commission understands that market participants may decide to provide investor notice and education about the availability of the new increment.193 Another commenter stated that the proposed variable minimum pricing increments were ‘‘not an effective solution to address concerns related to tick-constrained stocks’’ and suggested a uniform $0.001 minimum pricing increment for all NMS stocks.194 A uniform $0.001 minimum pricing increment for all NMS stocks goes beyond what is necessary to address the issues related to NMS stocks that are currently constrained by the $0.01 tick. A $0.001 minimum pricing increment would be significantly smaller than the current uniform $0.01 minimum pricing increment for quotes and orders for NMS stocks that are priced equal to, or greater than, $1.00 per share. A sub￾penny increment for NMS stocks that is too small would increase the incidence of stepping ahead (i.e., pennying) 195 and costs would not justify the benefits.
2. Specific Comments on the Proposed
Minimum Pricing Increments A few commenters did not support the implementation of the smallest proposed sub-penny increments (i.e., $0.002 and $0.001), and referenced certain concerns, including stepping ahead of displayed orders, quote flickering that occurs when the price of a trading center’s best displayed quotations changes multiple times in a single second, and decreased depth.196 Each of these were articulated as concerns by the Commission when Rule 612 was first adopted.197 Some commenters stated that having ticks that are too small would result in queue jumping 198 and decreased depth.199 In the Regulation NMS Adopting Release, the Commission discussed concerns related to stepping ahead of displayed quotations with orders priced in economically insignificant increments (i.e., to gain

200See Regulation NMS Adopting Release, supra note 4, at 37551. 201See infra section VII.D.1.b.ii and notes 1300– 1303 and accompanying text. 202See, e.g., MFA Letter at 11, State Street Letter at 3, RBC Letter at 3, and Invesco Letter at 3. 203See Regulation NMS Adopting Release, supra note 4, at 37551. 204 Id. at 37552. 205See MDI Adopting Release, supra note 10, for a discussion about market data latencies. Flickering quotations is more of a concern when there is quote latency, in other words, when the displayed quotations do not reflect the actual quotations. For example, when the quote is being updated faster than the quote can be displayed, the price discovery mechanism may not be benefitted. 206See Regulation NMS Adopting Release, supra note 4, at 37553–37554 (discussing the concerns with flickering quotes when Rule 612 was adopted and acknowledging that the market could evolve). 207See, e.g., SIFMA Letter II at 33; Vanguard Letter at 5; Schwab Letter II at 35; Fidelity Letter at 11; JPMorgan Letter at 4; UBS Letter at 12; Citigroup Letter at 4; and Harris Letter at 7. 208See, e.g., Pragma Letter, Robinhood Letter at 40; IEX Letter I at 9; and Angel Letter at 6. The adopted $0.005 minimum pricing increment will provide for at least three ticks intra-spread. See infra section VII.D.1. 209See, e.g., Interactive Brokers Letter at 4; Virtu Letter II at 4; and Themis Letter at 3. 210See infra section VII.D.1.b. 211See Regulation NMS Adopting Release, supra note 4, at 37552. 212See Regulation NMS Adopting Release, supra note 4, at 37552. 213See Citadel Letter I at 7. See also Virtu Letter II at 2 and 6–7. 214See infra section VII.D.1.b.i. 215See infra section III.C.6. 216See infra note 1299 and accompanying text. 217See, e.g., SIFMA Letter II at 34; AIMA Letter at 2; STA Letter at 6–7; Citadel Letter I at 30; Citigroup Letter at 4; Dimensional Letter at 2; BlackRock Letter at 3; Public Pension Letters dated Mar. 31, 2023; MMI Letter at 3; Brandes Letter at 1; Schwab Letter II at 35–36; Invesco Letter at 3; B. Riley Letter at 1; JPMorgan Letter at 4; Cambridge Letter at 6; and Tastytrade Letter at 18. 218See, e.g., MFA Letter at 12; Capital Group Letter at 3; ICI Letter I ; Angel Letter at 6 ; Vanguard Letter at 5; and Meuser et al. Letter at 1. 219See id. See also Nasdaq Letter I; MFA Letter; MEMX Letter; Capital Group Letter; ICI Letter I; Citadel Letter I; Citigroup Letter at 4; BlackRock Letter; Apex Letter; Ontario Teachers et al. Letter at 2; Citigroup Letter; GTS Letter; ICI Letter I; Invesco Letter; Robinhood Letter; SIFMA Letter II; STA Letter; UBS Letter; Vanguard Letter; TradeStation Letter at 6; Cboe Letter; IEX Letter; Nasdaq Letter I; and NYSE Letter I; Brandes Letter at 2; Invesco Letter at 2; Fidelity Letter at 14; Themis Letter at 6; B. Riley Letter at 1; JPMorgan Letter at 4; Morgan Stanley Letter at 4; State Street Letter at 3; Dimensional Letter at 2; BMO Capital Letter at 2; and Meuser et al. Letter at 1. 220See ASA Letter at
5. See also TradeStation Letter at 6. 221See, e.g., CTA/UTP Letter dated March 29, 2023; Nasdaq Letter I; State Street Global Letter; RBC Letter; ICI Letter I; Vanguard Letter; Cboe Letter II; SIFMA Letter II; Fidelity Letter; Brandes Letter at 2; Robinhood Letter at 20; Morgan Stanley Letter at 4; and Meuser et al. Letter at 2. execution priority) which can deter the display of aggressively-priced limit orders that would narrow the spread.200 In light of these comments, amended Rule 612 has been simplified compared to what was proposed. Thus, the Commission is only adding the $0.005 minimum pricing increment for quotes and orders for those NMS stocks that have a TWAQS of $0.015 or less. Because the $0.005 minimum pricing increment is based on the TWAQs of the NMS stock, the $0.005 minimum pricing increment, relative to the spread, will be economically significant for these stocks.201 Some commenters stated that smaller tick sizes would cause flickering quotations.202 In the Regulation NMS Adopting Release, the Commission considered issues related to quote flickering.203 The Commission stated that quote flickering can result in broker-dealers having difficulties in satisfying their best execution obligations and other regulatory responsibilities.204 Because computer algorithms and ultra-fast connections dominate today’s trading and quoting activities such concerns are not as acute or prevalent as they were at the time of the adoption of Rule 612.205 Today’s quotations are calculated and displayed in microseconds, which is significantly faster than in 2005 and while flickering quotations can exist today, computer systems are much better able to process them such that they should not cause compliance difficulties or investor confusion.206 Accordingly, because of technological advancements, today’s market structure, compared to 2005, can more readily handle rapid changes to a trading center’s best bid or offer. Further, the concerns about the potential for flickering quotes should be mitigated to some extent because the amendments do not include the smaller proposed increments (i.e., $0.001 and $0.002) and are designed to have fewer ticks between the spread which will lessen the potential price changes between the spread. Other commenters stated that the proposed minimum quoting increments of $0.002 and $0.001 were too small,207 would introduce too many intra-spread ticks,208 and could harm trading by substantially increasing fragmentation of liquidity.209 The Commission also considered the impact of sub-penny quoting on market depth,210 i.e., the number of shares available at the NBBO when it originally adopted quoting increments.211 Decreased depth could lead to increased transaction costs and fragmentation.212 Adopting only one additional minimum quoting increment instead of the proposed four-tier approach, should help address commenters’ concerns with respect to fragmented liquidity 213 because there will be fewer price levels at which liquidity
aggregates, which will result in less fragmentation. The modified amendment of Rule 612 does not include the proposed smaller minimum pricing increments for quotes and orders of $0.001 and $0.002, and thus commenters’ concerns related to those increments (e.g., decreased depth at the NBBO) are not applicable.214 As discussed, the Commission has determined to take an incremental approach in amending Rule 612 by only adding a $0.005 minimum pricing increment for those NMS stocks that are constrained by the preexisting, uniform minimum pricing increment based on an objective standard that is designed to have fewer ticks between the spread than the proposal.215 As adopted, those NMS stocks that are assigned the $0.005 minimum pricing increment will result in three ticks intra-spread, which falls in the middle of the 2 to 4 ticks intra￾spread suggested as potentially optimal by many commenters.216 Finally, the Commission addresses its primary concern of relieving the constraint related to the $0.01 increment for certain NMS stocks by only adding the $0.005 minimum pricing increment and not adding minimum pricing increments of $0.002 and $0.001. The $0.005 minimum pricing increment for constrained NMS stocks will allow these stocks to quote more naturally and efficiently, and thereby reduce transaction costs for investors without the concerns that would attach if the minimum pricing increments were smaller.
3. Comments on the Number of
Proposed Increments
Some commenters supported reducing the minimum pricing increment for quotes and orders to address those NMS stocks that are tick￾constrained, but overall did not support the proposal’s four minimum quoting increments.217 Many commenters stated that the proposed quoting increments were too numerous.218 Instead, a number of commenters recommended that the Commission adopt a modified, simpler amendment to Rule 612 and suggested only adopting one additional minimum quoting increment of $0.005 for tick-constrained NMS stocks.219 One commenter said that ‘‘reducing the tick size to one-half cent for stocks with narrower spreads will address the current market need.’’ 220 Commenters opposed the proposed four minimum quoting increments based on complexity for market participants to program into their systems these increments,221 potential increased costs for

222See, e.g., Dimensional Letter at 2. 223See, e.g., Tastytrade Letter at 5, 18; SIFMA Letter II at 7; Morgan Stanley Letter at 3, 4; Fidelity Letter at 13; SIFMA Letter II at 34; Better Markets Letter I at 14; Robinhood Letter at 20; Citadel Letter I at 8; and STA Letter at 5. 224See Better Markets Letter II at 4. See also Fidelity Letter at 12; Themis Letter at 6; Ontario Teacher et al. Letter at 2; and Harris Letter at 7. 225See TradeStation Letter at 6. 226See Themis Letter at 5. As discussed, the Commission is adopting a modified amendment to Rule 612 to introduce only a $0.005 minimum pricing increment for certain NMS stocks, not the smaller proposed increments of $0.002 and $0.001. Therefore, the commenter’s recommendation is no longer germane because without the proposed smaller $0.002 and $0.001 increments, the liquidity would not be as dispersed throughout the depth of the book which would not necessitate protection of the full depth of the book. 227See infra section VII.D.1. 228See BIO Letter at 1–2, 3 and STA Letter at 5. 229See BIO Letter at 1–2, 3. 230See STA Letter at 5. 231See Proposing Release, supra note 11, at 80272–73 for a discussion of the tick size pilot program. See also Tick Sizes and Market Quality:
Revisiting the Tick Size Pilot by Yashar H. Barardehi, Peter Dixon, Qiyu Liu, and Ariel Lohr, available at https://www.sec.gov/dera/staff-papers/ working-papers/dera_wp_tick-sizes-and-market￾qualityrevisiting-tick-size-pilot. 232See infra section VII.D.1. 233See infra section VII.D.1.b.ii. 234See also infra section VII.D.1.b.i and VII.B.2 for additional discussion. 235See, e.g., Letter from Howard Meyerson, Managing Director, Financial Information Forum, dated Mar. 31, 2023 (‘‘FIF Letter’’) at 6; and Goldman Sachs Letter at 8. 236See FIF Letter at 7. 237See FIF Letter at 7. See also Robinhood Letter at 41; Morgan Stanley Letter at 3; UBS Letter at 12; Citigroup Letter at 4; TradeStation Letter at 7; and Goldman Sachs Letter at 9. investors,222 and potential investor confusion with respect to minimum pricing increments that could change periodically as proposed.223 Another commenter stated that the four-tier proposal would favor ‘‘high-frequency traders who have a long history of leveraging complexity to their advantage and to the detriment of ordinary investors.’’ 224 One commenter stated that the proposed variable minimum pricing increments ‘‘as small as $0.001 goes well beyond what is necessary, and would also be cost prohibitive and complicated to implement.’’ 225 One commenter questioned the impact of smaller increments on Rule 611 of Regulation NMS and recommended that if the Commission ‘‘proceed[ed] with their sub-penny quoting proposal. . . .’’, it should consider amending Rule 611 to include all displayed depth of book quotes.226 After considering the comments and analyzing data,227 the Commission is amending Rule 612 to only add one new minimum pricing increment of $0.005 for those NMS stocks that have a TWAQS of $0.015 or less, rather than also adopting the additional two $0.002 and $0.001 pricing increments as proposed. The Commission’s basis for the new minimum pricing increment of $0.005 is rooted by the current midpoint increment when the NBBO is at its narrowest (or smallest) spread. The midpoint increment of the current $0.01 minimum quoting spread is calculated as (NBB plus NBO) divided by 2, and when the spread is at its narrowest, the midpoint increment is equal to $0.005. For example, if the NBB is 10.01 and the NBO is 10.02, the midpoint would be
10.015 ((10.01 + 10.02)/2) = 10.015).
Further, the new minimum quoting increment is at a price level familiar to all market participants and is already programmed into many computer systems. This modified approach addresses the concerns raised by commenters related to the proposed $0.002 and $0.001 minimum pricing increments. The adopted amendments also address commenters’ concerns about complexity and potentially advantaging certain types of market participants by reducing the number of new increments and the universe of NMS stocks that may be eligible for a smaller minimum pricing increment. The adopted $0.005 minimum pricing increment for those NMS stocks that have a TWAQS of $0.015 will address the immediate concerns about the constraints that have developed in the national market system as a result of preexisting Rule 612.
4. Comments on Small- and Mid-Sized
Stocks
A few commenters stated that the proposal to reduce minimum pricing increments did not consider the impact on small and mid-sized stocks.228 One commenter opposed the Regulation NMS Proposal because of concerns that it did not ‘‘address the needs and possible unintended consequences for small and mid-sized stocks’’ and that the Commission should ‘‘not take any action until such time as a pilot has been launched and its effects studied and verified by a committee of market participants and academics.’’ 229 Another commenter stated that the proposed tick sizes were ‘‘too granular’’ for small to mid-sized stocks and would result in fewer liquidity providers.230 The assignment of the smaller minimum pricing increment is not based on market capitalization because the economics of being tick-constrained do not depend on market capitalization. Rather, whether a stock is experiencing constraint depends on its spread. In other words, since a stock’s spread relative to the tick size does not depend on whether it has a small or mid-sized market capitalization, such a stock could still trade with a quoted spread constrained by $0.01 minimum pricing increment. With respect to implementing a pilot program to assess the needs and potential consequences of the proposal for small and mid-sized stocks, the Commission previously conducted a tick size pilot program for small- and mid-sized stocks to assess the impact of wider minimum quoting and trading increments.231 The Commission analyzed data from that pilot program for purposes of the amendments.232 Another pilot program is not necessary because the Commission and market participants have demonstrated with data the issues related to tick constraints that have increased since the preexisting rule was adopted.233 Further, the modified amendment will not introduce increments that are ‘‘too granular’’ for any NMS stock; only those NMS stocks that have a TWAQS of $0.015 or less will be assigned the new $0.005 increment, or three ticks or fewer within the spread. These NMS stocks are constrained by the preexisting increment and the amendment will alleviate this regulatory constraint to allow competitive forces of supply and demand to better establish bid and ask prices.234
5. Comments on Market Resiliency
A few commenters raised concerns related to market resiliency risks.235 The commenter stated that ‘‘[b]ecause the Commission’s proposal would increase the number of ticks inside the weighted average spread for many stocks, we could expect a significant increase in message traffic that would result from the Commission’s proposal.’’ 236 The commenter asked the Commission to consider the potential increased message traffic that could result from the proposed minimum pricing increments and stated that the proposal would result in a significant increase in message traffic.237 The commenter recommended the Commission take a measured and phased approach for reducing the minimum pricing increment for quoting to apply the minimum quoting increment initially to a limited number of stocks and additional groups of stocks in subsequent phases, with review of market resiliency during each phase. The amendments modifying Rule 612 will result in less message traffic, fewer systems changes and lower costs related to updating ticks for NMS stocks compared to the original proposal and

238See FIF Letter at 9. See also Citigroup Letter at 2. See infra section VII.D.5.a. 239See Proposing Release, supra note 11, at 80279, notes 196 and 197 (stating that in the second quarter of 2011, the average peak message per second for Tapes A and B reported by the CTA/CQ Plan was 1,015,000 and for Tape C reported by the UTP Plan was 408,300 versus 36.4 million reported by the Options Price Reporting Authority (‘‘OPRA’’)). See also section VII.E.1. 240See NYSE Letter I at 11–13. 241See FIF Letter at 10 (‘‘FIF members are concerned that increased message traffic could significantly increase the costs for the operation of the CAT system as increased quote volumes (including increased frequency of quote updates) would increase the number of CAT-reportable events. 100% of these increased CAT costs would be charged to broker-dealers and exchanges. The operating expenses for CAT were $84.5 million for 2020 and $146.5 million for 2021. CAT LLC, the operator of the CAT system, has estimated the total expenditures for CAT for 2022 at $178.9 million. These costs are in excess of the costs that were contemplated in the CAT NMS Plan.’’). 242See Citadel Letter II at 5. The commenter added that increased message traffic increases costs for all market participants, including higher fees charged by CAT and the exclusive SIPs. See also Citadel Letter I at 9 and Virtu Letter II at 6–7. 243See infra section VII.D.1.c. 244See, e.g., Citadel Letter II at 9 (‘‘A material increase in total message traffic increases costs for all market participants, including due to the resulting higher fees charged by industry utilities, such as the [CAT] and the [SIP]’’) and Virtu Letter II at 6–7 (‘‘The Commission has failed to analyze the impact of the significantly increased volume of market data on competing consolidators.’’). 245See infra section VII.D.1. 246See NYSE Letter II at 11 (stating that OPRA handles many times more messages than the equity markets). 247See MFA Letter at 11. 248See Tradeweb Letter at 2–3 (‘‘Even trading platforms with the most advanced technological infrastructure will need to expend considerable amounts of time and resources to prepare the accommodate increased message traffic, since any increase in latency (even at the millisecond level) would disrupt trading strategies, impair market functionality and liquidity, and, ultimately, harm market participants.’’); see also Virtu Letter II at 6 (‘‘This increase in message traffic. . . will significantly add to the overall content of market data.’’). See also NYSE Letter I at 6 and Nasdaq Letter I at 9 (‘‘Securities with too many ticks not only have wider spreads, but they also have more odd lots, and more message traffic, leading to a more fragile NBBO.’’). 249See infra section VII.D.1.a. 250See Options Clearing Corporation Daily Volume report, available at https:// www.theocc.com/Market-Data/Market-Data￾Reports/Volume-and-Open-Interest/Daily-Volume. therefore there should pose less of a concern related
to market resiliency. The modified amendment adopts a single sub-penny increment that impacts a smaller universe of NMS stocks compared to the proposal, which included three sub-penny increments that would have impacted more NMS stocks. The need for a phased approach is significantly reduced because fewer NMS stocks will be impacted by the one additional minimum quoting increment, and there will be fewer ticks between the spread. The commenter stated that the potential costs to industry members from increased message traffic would include purchasing additional computer hardware such as servers and that the costs would also apply to production, backup, test, and development environments.238 The commenter stated that the actual costs would be multiples of the estimated costs from the proposal. However, the adopted amendment to Rule 612 will result in less message traffic than the proposal because it has fewer quoting increments. Consequently, the modified amendments that are being adopted will reduce computer hardware and developmental costs for the industry compared to the proposal. In the Proposing Release, the Commission considered the message traffic of the options markets, and the systems for the options markets that handle many times more messages compared to (1) the current NMS stock market or (2) the estimated additional message traffic from the adopted amendments.239 One commenter submitted data that supported this conclusion.240 The commenter also raised concerns that increased quote message traffic could significantly increase the costs of the operation of the CAT system.241 The commenter recommended that the Commission estimate the potential increase in message traffic, provide those estimates to CAT LLC, obtain estimates from the CAT LLC of the increased CAT costs that would result from this increased message traffic, and factor the estimated costs into the cost benefit analysis of the proposed minimum pricing increments changes. Another commenter also stated that the Commission failed to consider whether the increase in message traffic will increase the CAT operating budget.242 The Commission estimates the impact of the adopted amendments on message traffic, and thus on the CAT operating budget in section VII.D.1.c. As discussed further below, the Commission estimates the increase in CAT costs associated with adopting the additional minimum pricing increment to be approximately $4.1 million per year.243 The Commission does not believe it is appropriate to delay action on Rule 612 to have CAT LLC engage in its own analysis of the potential costs. Commenters raised the issue of increased market data volume on competing consolidators, which are not yet in operation.244 Likewise, the possible costs to potential competing consolidators will be reduced vis-a`-vis the proposal. The Commission recognizes that while the costs may be lower than the proposed rule, the adopted rule could nevertheless create increased message traffic than the
preexisting rule. It follows that more message traffic could lead to more possible costs for competing consolidators. However, this new message traffic should still be within the operational capacity of the existing computer systems.245 One commenter stated that even with the largest potential increases in messages, equity messaging traffic would remain well below that of the options market and that ‘‘the increase in messaging activity from adopting finer tick increments is now well within the industry’s capability.’’ 246 On the other hand, another commenter stated that a larger number of ticks across a large number of stocks would lead to increased message traffic, which would, in turn, increase data and infrastructure costs and market latency.247 One commenter added that increased message traffic would lead to increased latency, which would harm market participants by disrupting trading strategies and impairing market functionality and liquidity.248 As stated above, the adopted amendment to Rule 612 is significantly less complex than the proposal and will not result in the larger number of ticks across a large number of stocks as the commenter suggested. The proposal’s four minimum tick increment has been simplified to one additional new tick at $0.005, and the proposal’s reduction of minimum pricing increments for NMS stocks that had a TWAQS of $0.04 or less has been reduced to those NMS stocks that have a TWAQS equal to or less than $0.015, which results in fewer expected NMS stocks being assigned a smaller minimum pricing increment.249 These adopted changes may result in significantly less message traffic than under the commenter’s assumption on the proposal. While message traffic may increase over today’s message traffic, any increase in message traffic will be significantly less than in the options market, and the options market participants have over the years adjusted to increasingly higher message traffic.250
6. Comments on Proposed Criteria for
Assigning Minimum Pricing Increments The Commission proposed to measure the TWAQS when determining the appropriate minimum pricing increment for NMS stocks and proposed four ranges of the TWAQS to determine the corresponding minimum pricing increments. The four proposed TWAQS ranges were: (1) equal to or less than

251See, e.g., Pragma Letter at 6 (‘‘tick-constrained stocks will benefit from smaller tick sizes with narrower spreads.’’); MEMX Letter; NYSE, Schwab, and Citadel Letter; IEX Letter I at 7; Nasdaq Letter I at 2 (‘‘Nasdaq supports adjusting the minimum pricing increment (‘‘tick size’’) to better reflect the trading dynamics of Regulation National Market System (‘‘Reg. NMS’’) securities.’’); Brandes Letter at 2; Schwab Letter II at 35; and Robinhood Letter at 46. 252See, e.g., IEX Letter I; Pragma Letter; Invesco Letter; ICI Letter II at 14 (stating that the Commission should not apply sub-penny increments to stocks that are not tick-constrained); ASA Letter (‘‘we strongly oppose the application of a one-half cent tick size to any stock outside of the most liquid (narrower spread) stocks.’’); Nasdaq Letter I at 14 (‘‘We propose that securities fall into this new $0.005 tick bucket only if they are tick￾constrained.’’); and Cboe Letter II. 253See Invesco Letter at 3. See also e.g., ICI Letter II (stating that there is no market failure or harm identified for stocks that are not tick-constrained.) and Brandes Letter at 2 (favoring a reduction to $0.005 for those stocks that are experiencing constraint with the $0.01 increment and stating that the proposed reduction in a minimum pricing increment for stocks that had a TWAQS of $0.04 or less was too broad). 254See, e.g., NYSE Letter I; Vanguard Letter; Cboe Letter I; and Schwab Letter II at 35–36. But see also Invesco Letter at 3 (stating that $0.011 was overly broad and would result in unnecessary tick reductions for stocks that are not tick-constrained.). 255See, e.g., IEX Letter I at 7 (‘‘IEX agrees with the premise that tick sizes should be reduced for stocks that are currently ‘‘tick-constrained’’ or could easily become tick-constrained because of the current one-cent limitation.’’). 256See IEX Letter I at 7, 13 (‘‘We believe that reducing the tick size and applying it to all securities with a TWAQS up to two cents will substantially improve the efficiency of displayed trading . . .’’). 257See BMO Capital Letter at 2 and Form Letter Type H, of which 853 comments were received, available at https://www.sec.gov/comments/s7-30- 22/s73022.htm. 258See Pragma Letter at 6 (‘‘While perhaps not conclusive, the lines of evidence from our analysis also suggest that the Proposal’s range of 4 to 8 ticks is too many and will force wider spreads and higher trading costs on the market than necessary. This leads to our primary recommendation: stocks should be moved to a smaller tick size only when their average spread is less than 1⁄5 in the preceding month; and moved to a larger tick size only when their spread is greater than 4 ticks in the preceding month.’’). 259See infra section VII.D.1.b for more discussion on TWAQS. 260See infra note 1303 and accompanying text. See also Nasdaq Letter I at 18 (stating that ‘‘quoting outside of the optimal 2–3 tick spreads leads to queues for tick-constrained securities and
slower price formation for securities with overly-wide spreads.’’). 261See infra section VII.D.1.b. 262See, e.g., Nasdaq Letter I at 8, 18; Pragma Letter at 1; RBC Letter at 3; CCMR Letter at 23; Letter from Eric Swanson, Chief Executive Officer, XTX Markets LLC, dated Mar. 30, 2023 (‘‘XTX Letter’’) at 4; MMI Letter at 5; and Harris Letter at
7. See also infra notes 1293–1299 and
accompanying text. 263See, e.g., IEX Letter I at 7 (‘‘[w]e agree that TWAQS is a reasonable and appropriate measure to define which securities should be subject to a narrower tick size.’’); MEMX Letter; and BMO Capital Letter. 264See, e.g., Form Letter Type K, of which 22 comments were received, available at https:// www.sec.gov/comments/s7-30-22/s73022.htm; Anonymous Letter dated Mar. 6, 2023; letter from Victor Piousbox dated Mar. 6, 2023; letter from Jimit Raithatha dated Mar. 7, 2023; letter from Munib Mian dated Mar. 7, 2023; letter from Peter Unum dated Mar. 19, 2023; letter from Anonymous dated Mar. 22, 2023; and letters from Chris and Donna Graves, dated Mar. 26, 2023; Spencer Neukam dated Mar. 26, 2023; Samuel Cressy dated Mar. 24, 2023; and Zaf Khan dated Mar. 24, 2023. 265See, e.g., Cboe Letter II at 3 (‘‘The most critical step in any tick-size regime reform is first establishing an objective methodology designed to address truly tick-constrained securities. In this regard, we recommend using a multi-factor methodology, such as Cboe’s Tick Size Reduction Framework.’’); Themis Letter at 7 (supporting Cboe’s methodology); Cboe, State Street, et al. Letter; Optiver Letter (discussing the European Union’s tick regime as considering stock price and liquidity); NYSE Letter I; ICI Letter II at 11 (stating that applying other factors would lessen concerns about an overbroad tick reduction and mitigate concerns about an adverse market outcome); BlackRock Letter at 5 (stating that quoted spread is one-dimensional and does not provide sufficient context for determining the optimal tick size); Citigroup Letter (recommending a new $0.005 quoting increment for the most liquid tick￾constrained stocks); T. Rowe Price Letter (stating that a multi-factor approach would allow the Commission to measure whether a tick size is properly calibrated); STA Letter at 6 (recommending that the Commission use a multifactor approach); Virtu Letter II at 6 (stating ‘‘one must consider many factors, not just quoted spread’’ and describing methods proposed by Cboe and Nasdaq); NYSE, Schwab, and Citadel Letter at 1 (‘‘We define ‘tick-constrained’ to mean symbols that have an average quoted spread of 1.1 cents or less and a reasonable amount of available liquidity at the NBBO.’’); and Cambridge Letter at 6 (stating that securities should have an average quoted spread of 1.1 cents and be ‘‘reasonably liquid’’). See also SIFMA Letter II at 36 (‘‘SIFMA believes that a more robust analysis is necessary to evaluate the most appropriate tick sizes for purposes of achieving the best balance between available liquidity at the inside quotation versus narrower spreads.’’). 266See, e.g., BlackRock Letter at 6 (‘‘ . . . if material size was present at the National best Bid $0.008; (2) greater than $0.008 but less than or equal to $0.016; (3) greater than $0.016 but less than or equal to $0.04; and (4) greater than $0.04. Preliminarily, the Commission believed that NMS stocks with a
TWAQS of $0.04 or less would have benefited from smaller minimum pricing increments. After considering the comments, the Commission is retaining TWAQS as the measure to determine when an NMS stock will be assigned smaller minimum pricing increment but has modified the threshold to be equal to or less than $0.015. Many commenters stated that tick￾constrained stocks would benefit from smaller minimum pricing increments.251 Commenters, however, raised concerns about reducing the minimum pricing increment for NMS stocks that were not experiencing tick constraint with the $0.01 minimum pricing increment.252 One commenter stated that ‘‘a reduction in tick sizes for those stocks that are merely near-tick￾constrained will not result in meaningful price-improvements and will not be worth the increased risk of diminished liquidity to bids and offers being spread too thinly across too many price points.’’ 253 As adopted, the new $0.005 minimum pricing increment will be assigned to those NMS stocks that have a TWAQS of $0.015 or less. These NMS stocks are experiencing constraint with the $0.01 minimum pricing increment and will benefit from being able to be quoted in the smaller increment. As adopted, the Commission has modified the amendment so as not to assign the smaller $0.005 increment to those NMS stocks that are not necessarily experiencing constraint with the $0.01 minimum pricing increment. Some commenters stated that the TWAQS of $0.011 should be used for identifying NMS stocks that are experiencing tick constraint.254 However, one commenter recommended that NMS stocks that ‘‘could easily become tick-constrained’’ should have their minimum pricing increment reduced.255 Other commenters offered other recommendations as to the TWAQS threshold for reducing minimum pricing increments, including a TWAQS threshold of $0.02 or less,256 a TWAQS threshold of $0.016 or less,257 and a TWAQS threshold of 0.015 or less.258 As discussed further below, the Commission is adopting the TWAQS threshold of $0.015 or less in order to identify NMS stocks that will be eligible for the $0.005 minimum pricing increment.259 This amendment will generally result in these NMS stocks having a bid-ask spread with one to three ticks, which will improve market quality.260 Data analysis supports that liquidity and market quality will improve if NMS stocks with a TWAQS of $0.015 or less are assigned to the $0.005 minimum pricing increment.261 Commenters provided analysis and cited studies that suggest that 2 to 4 ticks intra-spread is optimal for trading, which is consistent with the results of the Commission’s analysis.262 Some commenters agreed that the TWAQS was the appropriate measure for determining the relevant minimum pricing increment.263 Several commenters stated that as many stocks as possible should be identified as eligible for a smaller tick size.264 Other commenters suggested that a multi￾factor approach be taken in evaluating whether to reduce the minimum pricing
increment for certain NMS stocks.265 Commenters suggested that such factors include average quoted size,266 ratio of

and Offer (‘NBBO’) or a significant proportion of executions were occurring at sub-penny prices, this would be a clear indication of fierce order book competition and interest to tighten the spread and trade in smaller increments.’’); T. Rowe Price Letter; and Citadel Letter I. 267See, e.g., Cboe Letter II at 3 (‘‘we started with the complete universe of NMS securities, and applied three constraints—quoted spread, quoted￾size-to-trade-size ratio, and notional turnover ratio—to arrive at a group of securities that are quantifiably tick-constrained.’’) and BlackRock Letter. 268See, e.g., BlackRock Letter at 5 (‘‘BlackRock recommends that in addition to the time weighted quoted spread, the Commission should incorporate other factors for designating tick sizes, such as the average quoted size, ratio of average quoted size to average traded size, daily traded volume, or stock price.’’); Optiver Letter; T. Rowe Price Letter; and Citadel Letter I. 269See, e.g., T. Rowe Price Letter at 4 (‘‘Other factors that could be considered include queue length and quoted size at the top of the order book, turnover, and whether the stock is quoted on multiple exchanges.’’) and Citadel Letter I. 270See, e.g., T. Rowe Price Letter at 4. 271See, e.g., BlackRock Letter at 5 and Optiver Letter (‘‘[w]e recommend that the Commission undertake further analysis of the optimal level of tick granularity, leveraging price and volume to define appropriate tick sizes.’’). 272See ICI Letter I at 11. See also Cambridge Letter at (stating that minimum pricing increments should be reduced for those stocks that have a TWAQS of $0.011 or less and ‘‘are reasonably liquid.’’) and Citigroup Letter at 4. 273See, e.g., NYSE Letter I at 3. See also B. Riley Letter. 274 Id. 275See MMI Letter (stating that spread leeway. . . ‘‘quantifies the extent to which bid-ask spreads are constrained by the minimum tick size . . . is equal to the average quoted spread divided by the minimum tick size. Prior studies have suggested a spread leeway of 3–9 as optimal for tick sizes to be neither too small, nor too large.’’). 276 Id. at 5. 277See Invesco Letter at 3. 278See Cboe Letter I and Cboe Letter II at 3. See also Cboe, State Street, et al. Letter; State Street Letter at 3. 279See Cboe Letter I at 2. 280 Id. 281See, e.g., SIFMA Letter II at 40; Tastytrade Letter at 18; and Themis Letter at 4. 282See infra section VII.D.1.b.iii. for further discussions of alternative criteria. 283See Proposing Release, supra note 11, at
80274. 284See infra section VII.D.1.b.iii. 285See infra section VII.D.1.b.iii. 286See Angel Letter at 5. But see Harris Letter at
8 (opposing suggestions that issuers should choose ticks). average quoted size to average traded size,267 daily traded volume,268 queue length,269 quotes on multiple exchanges,270 or stock price.271 One commenter recommended the inclusion of factors such as large quoted displayed size and a relatively high level of liquidity based on average daily trading volume.272 One commenter suggested that in addition to the TWAQS, ‘‘quote stability’’ should be measured.273 According to the commenter, quote stability would be measured by looking at a change in a stock’s quote after execution; if the quote widens after an execution, ‘‘the quoted liquidity may not be sufficient for the liquidity demanded, suggesting that the quote increment is not actually constraining quoting activity.’’ 274 Another commenter suggested that the Commission consider using ‘‘spread leeway,’’ which the commenter defined as equal to the average quoted spread divided by the minimum tick size.275 The commenter stated that spread leeway could ‘‘effectively quantify the extent to which bid-ask spreads are constrained by the minimum tick size.’’ 276 Another commenter suggested that in addition to a TWAQS of $0.011, there should be ‘‘balance or near equilibrium of multiple bids and offers at the top of the central order book’’ as this would ‘‘imply that market forces of supply and demand would naturally force the bid/ask spread tighter through market competition.’’ 277 One commenter that recommended a multi￾factor approach to identify NMS stocks suggested that in addition to average quoted spread, a high quoted size to traded size ratio and a high average daily notional turnover should be examined when identifying NMS stocks that are tick-constrained.278 According to the commenter, a high quoted size to traded size ratio is ‘‘an objective signal that shows even though there is an abundance of liquidity, the current $0.01 tick constraint disincentivizes investors to cross the spread due to high costs, resulting in a lack of trade executions.’’ 279 Further, the commenter stated that a high average daily notional turnover is ‘‘an objective signal because it focuses the tick reduction effort on high turnover securities that would benefit from the ability to be traded in finer increments.’’ 280 Other commenters supported this approach.281 After analyzing data to determine whether the suggested additional factors would be helpful in eliminating NMS stocks that could be harmed by a smaller minimum pricing increment,282 the Commission has concluded that TWAQS is the appropriate measure to determine whether an NMS stock should be eligible for a smaller minimum pricing increment. Specifically, TWAQS provides a transparent and objective basis to determine whether the $0.01 minimum pricing increment results in a quoted spread that is too wide for a particular NMS stock. Other possible factors, such as average quoted size, ratio of average quoted size to average trade size, the average daily traded
volume, queue length, quotes on multiple exchanges or stock price, would add unwarranted and additional complexity that would be difficult and costly for market participants to monitor because some of these measures require the purchase of proprietary data. Supplementing TWAQS with quoted size, turnover calculations, quote stability, and the other recommend criteria would similarly add additional complexity and responsibilities to the primary listing exchanges assigned to calculating TWAQS.283 The additional criteria suggested by commenters are unnecessary because TWAQS is a sufficient, comprehensive and objective way to determine whether NMS stocks are experiencing issues of constraint related to the $0.01 minimum pricing increment for quotes and orders.284 Specifically, the Commission concluded that harm is unlikely to result if the other data factors suggested by commenters (e.g., price, volume, or depth-based criteria) are not included.285 Accordingly, the Commission is not adopting factors other than the TWAQS to measure which NMS stocks would be assigned a minimum pricing increment of $0.005. One commenter suggested that issuers should be able to select the minimum pricing increment for the quotes and orders of their stock.286 The Commission disagrees. Rule 612 is an important rule under Regulation NMS and serves to link the markets within the national market system by establishing uniform minimum pricing increments for all NMS stocks. This important linkage function would be undermined by allowing increments to be individually assigned to each NMS stock in a non-uniform manner. Rule 612, as originally adopted and as amended, standardizes minimum pricing increments based on transparent and objective criteria in order to ensure that minimum pricing increments are applied uniformly. Introducing issuer choice would eliminate such standardization and enable individual issuers to choose different minimum pricing increments based on their specific, unique individual preferences which would likely result in random and inconsistent application of increments across NMS stocks that otherwise share several relevant trading characteristics. Minimum pricing increment for quotes and orders of NMS stocks priced greater than, or equal to, $1.00 per share based on unpredictable, opaque, non-standard criteria of individual issuers would result in unnecessary complication, such as varied minimum quoting increments

287See, e.g., IEX Letter I; Optiver Letter; NYSE Letter I; Pragma Letter; MMI Letter; FIA PTG Letter II; BlackRock Letter; SIFMA Letter II; T. Rowe Price Letter; Cboe Letter I and Cboe Letter II; UBS Letter; and JPMorgan Letter at 4. 288See, e.g., IEX Letter I and NYSE Letter I (stating that the quarterly updates based on the last month of a quarter’s data would ‘‘ensure that the next quarter’s universe of tick-constrained names is selected using the most recent and relevant basis and allows for monitoring of other securities that are not yet tick-constrained but maybe starting to exhibit tick-constrained behavior.’’). IEX, however, recommended that the second month of a quarter be used for calculating the TWAQS. See also infra note 305 and accompanying text. See also Harris Letter at 7. 289See, e.g., Optiver Letter at 2; MMI Letter at 6; FIA PTG Letter II at 2; and UBS Letter at 13. See also Cboe Letter I at 5 (stating that the framework for reevaluating the parameters for revising tick changes according to their proposed methodology should be quarterly or bi-annually so that the parameters ‘‘remain nimble to changing market conditions.’’). 290See Optiver Letter at 2. 291See FIA PTG Letter II at 2–3. See also MMI Letter at 6 (‘‘The evaluation period preceding the change should be at least one quarter to avoid capturing instances of market volatility, or events such as stock splits that may indirectly drive trading interest that cause the behavior and characteristics of a stock to depart dramatically from its history.’’). 292See FIA PTG Letter II at 2–3. 293See MMI Letter at 6. 294See UBS Letter at 13. 295See JPMorgan Letter at 4. 296See Pragma Letter; UBS Letter; and BlackRock Letter. See also SIFMA Letter II. 297See Pragma Letter at 1. 298See id. 299See BlackRock Letter at 10. See also SIFMA Letter II (commenting on three different elements— ticks, access fee caps and round lots—that would have to be updated and stating ‘‘[b]roker-dealers will be required under the Tick Size Proposal to update their systems to appropriately account for all three of these variable changes, which carries inherent risks (and costs) of inadvertent errors relative to today’s environment where each of these variables are static.’’). See also section V.B.3.b.iii for a discussion of the modifications to the round lot definition. 300See UBS Letter at 12. 301See infra section VII.D.1.d for additional discussion on the three-month period. 302See supra note 290 and accompanying text. The suggestion that minimum pricing increments be updated on a monthly basis would raise these concerns. and investor confusion, to the national market system. Further, market participants would likely incur additional costs related to, for example, the monitoring and tracking of the minimum pricing increments for issuers.
7. Rule 612(a)—Definitions
As adopted, amended Rule 612(a) contains two definitions for purposes of the rule—‘‘Evaluation Period’’ and ‘‘Time Weighted Average Quoted Spread.’’ The primary listing exchanges will use these definitions in identifying the required minimum pricing increments for NMS stocks. a. Evaluation Period The Commission proposed to define ‘‘Evaluation Period’’ as the last month of a calendar quarter (March in the first quarter, June in the second quarter, September in the third quarter and December in the fourth quarter) of a calendar year during which the primary listing exchange shall measure the TWAQS of an NMS stock that is priced equal to, or greater than, $1.00 to determine the minimum pricing increment to be in effect for the next calendar quarter, as set forth by proposed paragraph (c). In other words, the minimum pricing increment for quotes and orders would have been evaluated every quarter based on one month’s worth of data and could have potentially changed once every quarter. After considering the comments, the Commission is adopting a revised definition of Evaluation Period. Rule 612(a)(1) defines Evaluation Period as (i) the three months from January through March of a calendar year and (ii) the three months from July through September of a calendar year during which the TWAQS of an NMS stock shall be measured by the primary listing exchange to determine the minimum pricing increment for each NMS stock. The Commission received comments on the proposed definition of the Evaluation Period.287 Two commenters generally supported the definition as proposed.288 Several commenters stated that one month was too short a period for measuring and calculating TWAQS.289 One commenter stated that an analysis of one month’s data ‘‘has the potential to disproportionally weigh systemic and idiosyncratic events (including corporate actions) resulting in unrepresentative tick sizes.’’ 290 Another commenter stated that ‘‘longer evaluation periods will reduce the risk that short-term aberrations will have an outsized impact on market structure. Using too short of an evaluation period, especially during periods of heightened volatility, could lead to unrepresentative price variations that ultimately result in illogical minimum price increments.’’ 291 A few commenters recommended providing a longer period for conducting data analysis. Specifically, one commenter suggested that the time frame be ‘‘coterminous with the time between tick size changes. In other words, if tick sizes are adjusted every quarter, then the evaluation period should be every quarter . . .’’ 292 Another commenter suggested that the Evaluation Period should be at least one quarter.293 Another commenter recommended that the Evaluation Period be performed on an annual basis so as to reduce costs and operational risks that may be created by needing to update relevant systems.294 Finally, one commenter suggested that the evaluation of NMS stocks be conducted on a semi-annual basis, based on
six-months of data, to reduce variability and complexity.295 A few commenters provided suggestions as to the length of time between tick adjustments.296 One commenter stated that ticks should be adjusted on a monthly basis rather than a quarterly basis.297 The commenter stated ‘‘[w]e would expect more frequent smaller updates to reduce how often and how long a stock’s tick stays outside the optimal range.’’ 298 Another commenter, however, suggested that the Commission align tick adjustments with other elements in the proposal. Specifically, this commenter recommended that ‘‘the Commission reduce the frequency of changes and synchronize the intervals for revising market structure parameters by updating both round lots and tick sizes on a quarterly or semi-annual basis.’’ 299 Another commenter suggested an annual consideration as a means to reduce burdens on market participants and reduce operational risks.300 After considering the comments on the length of the Evaluation Period, the amended rule will require that the TWAQS be measured over a longer period of time than proposed, i.e., using three months’ worth of trading data instead of one month, and minimum pricing increments will be assigned on a less frequent basis, i.e., every six months instead of every three months. The Commission conducted analysis to evaluate the length of the data analysis for the TWAQS and the length of time between minimum pricing increment assignments.301 This revised definition balances the concerns raised by commenters that a TWAQS measured over too short a time frame could potentially be skewed by high volatility or unique events, such as corporate actions,302 but that a TWAQs measured over too long of a time period would increase the probability of assigning a stale minimum pricing increment for quotes and orders that does not reflect the prevailing trading characteristics. Further, an annual evaluation would potentially cause some NMS stocks to remain in a sub-optimal minimum pricing increment for too long, while a monthly evaluation of NMS stocks would raise concerns about investor confusion with frequent re-assignments

303See T. Rowe Price Letter and IEX Letter. 304See T. Rowe Price Letter at 4. 305See IEX Letter I at 7 (suggesting that the Commission provide ‘‘one month between the end of data collection and the beginning of trading with the reallocated tick sizes, in order to avoid any unanticipated disruptions.’’) and T. Rowe Price Letter. 306See T. Rowe Price Letter at 4. 307See Fidelity Letter at 13. 308See Fidelity Letter at 13. See also Harris Letter at 7 (recommending mechanisms to ensure traders can determine relevant ticks). 309See also infra section V.B.3.b.iv. 310See SIFMA Letter I at 43. 311See Rule 612(b)(3). 312As discussed above, the Commission received comment on whether there should be factors in addition to the TWAQS for determining whether an NMS stock is tick-constrained. See supra section III.C.6. 313See supra section III.C.7.a, for a discussion of the adopted Evaluation Period. 314See supra note 303 and accompanying text. 315See SIFMA Letter II at 42 and Virtu Letter II at 20. and increase operational risks due to the need for frequent systems updates. The adopted semiannual evaluation addresses the potential burdens and concerns of an Evaluation Period that is either too long or too short. Finally, two commenters recommended adding an implementation time period between the calculation of the TWAQS and the potential change to an NMS stock’s minimum pricing increment.303 One commenter stated that the proposed rule ‘‘leaves little to no time for the industry to communicate the change and update systems to reflect the new tick sizes.’’ 304 Both commenters suggested that the rule should provide one month between the end of the data collection and the effectiveness of any new minimum pricing increments.305 One commenter stated that one month between the calculation of the TWAQS and the implementation of new tick sizes would ‘‘give the industry adequate time to process changes and minimize errors.’’ 306 Another commenter stated that the quarterly changes with short transition time would raise operational risk in the market and at individual firms.307 This commenter also stated that ‘‘[f]requent changes to tick sizes will require considerable investor education.’’ 308 The Commission agrees with commenters’ suggestions and is also adopting an implementation period for introducing new minimum pricing increments after an Evaluation Period. As adopted, market participants will have one month to implement any new minimum pricing increments. This will reduce concerns about operational risk and will provide market participants with time to inform investors of any changes in placing orders. One month is an adequate time period for market participants to adapt and make any required systems change to reflect the change, if any, in minimum pricing increment of the quotes and orders of an NMS stock that is priced greater than, or equal to, $1.00 per share. A longer period could partially nullify the objectives of the adopted rule to ameliorate issues
related to the constraint of stocks that are quoting at the $0.01 minimum pricing increment. As discussed below, the Commission has aligned the semiannual evaluation and implementation of minimum pricing increments and the dates for implementing any minimum pricing increments with the timing for changes to NMS stocks round lot assignment.309 The Commission agrees with commenters who recommended that these two evaluations and updates be conducted at the same time. This will lessen the burdens on the primary listing exchanges and market participants of implementing new minimum pricing increments and round lots. Further, it will lessen operational risks associated with frequent system updates. Rule 612(a)(1) also requires that the TWAQS be measured for all NMS stocks by the primary listing exchange. One commenter requested clarification as to what would occur in volatile situations ‘‘where a low-priced stock (e.g., sub $1.00) suddenly jumps to a higher price (e.g., $8.00).’’ 310 This situation could occur under preexisting Rule 612 as the relevant minimum pricing increment is based on the price of the order or quote. However, because orders in an NMS stock can be submitted with prices at or above $1.00 and below $1.00 depending on its current market price, under the amended rule, each NMS stock must have its TWAQS measured so that a minimum pricing increment will be assigned for those orders that are priced at or above $1.00. Therefore, as amended, all NMS stocks will be assigned a minimum pricing increment based on its TWAQS and investors will be able to understand the relevant minimum pricing increment for their orders when priced at or over $1.00 and when priced under $1.00. Under the rule, as adopted, quotes and orders in NMS stocks that are priced less than $1.00 will continue to have a minimum pricing increment of $0.0001.311 The operation of the amended rule is consistent with how the preexisting rule operates in that quotes and orders for a particular NMS stock may be required to be priced in a $0.01 or $0.005 increment when the price of an order is equal to or greater than $1.00 and may also be priced in a $0.0001 increment when the price of an order is less than $1.00. b. Time Weighted Average Quoted Spread The Commission proposed to define TWAQS as the average dollar value difference between the NBB and NBO during regular trading hours where each instance of a unique NBB and a unique NBO is weighted by the length of time that the quote prevailed as the NBB or NBO. The Commission did not receive any comments on the definition of TWAQS.312 The definition in Rule 612(a)(2) is adopted as proposed.
8. Rule 612(b)(1)—Semiannual
Operative Dates
Rule 612, as adopted, contains amended paragraph (b)(1), which defines the operative dates for the minimum pricing increments assigned to each NMS stock and provides a month-long time period to implement potentially new minimum pricing increments at the end of each Evaluation Period. Specifically, minimum pricing increments for quotes and orders will be operative on the first business day of May following the Evaluation Period from January through March and the first business day of November following the Evaluation Period from July through September.313 In adopting these operative dates, the Commission seeks to reduce the risk that market participants may not be fully staffed during the time that technology changes are necessary to implement new minimum pricing increments. Further, in addition to providing market participants with adequate time to make necessary systems changes, the implementation period will also provide adequate time for investors to be notified about the minimum pricing increment for the quotes and orders of NMS stocks that are priced equal to or greater than $1.00.314 Two commenters requested clarification as to how stock splits would be handled.315 Once assigned under Rule 612(b)(1), minimum pricing increments will remain operative until the next operative date (i.e., May or November). Therefore, a stock split will not impact an NMS stock’s minimum pricing increment until the next cycle. In order to avoid the complexity and confusion that could occur if the minimum pricing increment of NMS stocks were reassigned at unpredictable times, minimum pricing increments will

316See SIFMA Letter II at 42; BlackRock Letter at 10; Virtu Letter II at 18. 317See SIFMA Letter II at 42; Virtu Letter II at 18. 318See BlackRock Letter at 10. 319See also section V.B.3.b.iii. 320Preexisting Rule 600(b)(78) was subsequently renumbered to Rule 600(b)(89) by the Rule 605 Amendments. See Rule 605 Amendments, supra note 10. 321See rule 600(b)(24). 322See MMI Letter at 6. 323See MMI Letter at 6. 324See MDI Adopting Release, supra note 10, at 18729 for a description of the regulatory messages that are disseminated by the exclusive SIPs. 325See Rule 600(b)(89)(iv). 326Sections 11A(c)(1)(C) and 11A(c)(1)(D) and Rule 603(a). See MDI Adopting Release, supra note 10, at 18684. 327The SIP data format will be available at the SIP’s website, https://www.ctaplan.com/index. 328The Commission also proposed to impose a minimum pricing increment for trades for quotes and orders priced less than $1.00 that would have been the same as the minimum pricing increment for quotes, i.e., $0.0001. See Proposing Release, supra note 11, at 80283. 329See Proposing Release, supra note 11, at 80268–69. 330See Proposing Release, supra note 11, at 80283. 331See Proposing Release, supra note 11, at 80283. 332See Proposing Release, supra note 11, at 80303. not be changed during the time between operative dates.
9. Rule 612(c)—New NMS Stocks
Commenters asked for clarification on how new NMS stocks would be handled under Rule 612.316 One commenter questioned how new NMS stocks and IPOs would be assigned minimum pricing increments and stated that allowing exchanges to assign different initial tick sizes could lead to ‘‘arbitrage of issuers choosing the exchange that offers the most favorable initial tick size.’’ 317 Another commenter stated that ‘‘the simplest and most intuitive alternative would be to use specifications which were previously considered to be the standard unit, such as a $0.01 tick size.’’ 318 The Commission agrees. New NMS stocks will be assigned the same initial minimum pricing increment under Rule 612(c), which requires all securities that become an NMS stock to be assigned to the minimum pricing increment of $0.01.319 Thereafter, the TWAQS of the NMS stock will be calculated during the next Evaluation Period to determine which minimum pricing increment will be required under Rule 612(b)(2). Sub￾penny increments are limited to quotes and orders priced $1.00 or more for those NMS stocks that have a demonstrated narrow TWAQS during the defined Evaluation Period; new NMS stocks that become eligible for trading during an operative period will not satisfy this requirement. New NMS stocks will have their TWAQS calculated during the next Evaluation Period after they start trading.
10. Rule 600(b)(89)—Regulatory Data
The Commission proposed to amend the definition of regulatory data in Rule 600(b)(78) 320 to require the primary listing exchange for each NMS stock to calculate and provide to competing consolidators, self-aggregators, and the exclusive SIPs an indicator of the applicable minimum pricing increment required under Rule 612. The Commission is adopting the minimum pricing increment indicator, as proposed, under the definition of regulatory data in Rule 600(b)(89)(i)(F). A minimum pricing increment indicator will be useful to market participants, including investors, by providing important information about the relevant minimum pricing increment for each NMS stock. This indicator will help market participants, including investors, with submitting orders in the relevant increment. Because the minimum pricing increment can change on a semiannual basis depending on the TWAQS on an NMS stock, this indicator will enable market participants to trade in a more informed manner. The indicator will be included in SIP data that is disseminated by the exclusive SIPs and consolidated market data 321 disseminated by competing consolidators, which will help to ensure the wide availability of information about the applicable minimum pricing increment for each NMS stock. One commenter supported the minimum pricing increment indicator stating that it would make the new increments easier to implement.322 This commenter suggested that the exclusive SIPs publish the indicator every morning, in a machine-readable format, and free of charge.323 The exclusive SIPs currently provide certain information that comprises regulatory data as part of SIP data.324 Under the rule, the exclusive SIPs will be required to collect and disseminate a new regulatory data element, the minimum pricing increment indicator, and collect and disseminate this regulatory data element as part of SIP data.325 To the extent that the exclusive SIPs charge fees for this new regulatory data element, such fees will be required to be filed under rule 608 of Regulation NMS and must be fair and reasonable and not unreasonably discriminatory.326 The Commission has not required a specific format for SIP data, including regulatory data; such format will be developed by the Operating Committees’ for the Equity Data Plans consistent with regulatory requirements.327 D. Minimum Pricing Increment for Trades The Commission proposed to amend Rule 612 to introduce minimum pricing increments for trades of NMS stocks where the minimum pricing increment for trading NMS stocks priced at or above $1.00 would vary and correlate to one of the four proposed minimum pricing increments for quoting (i.e., $0.001, $0.002, $0.005 and $0.01), subject to proposed exceptions for midpoint trades and benchmark trades.328 The proposed minimum pricing increments for trades would have harmonized trading increments (1) with the proposed variable minimum pricing increments for quotes and orders (in this release, ‘‘Quote and Trade
Harmonization’’), and (2) across all trading venues (in this release, ‘‘Venue Harmonization’’). Specifically, Quote and Trade Harmonization would have required all trading to occur in the same increments as those required of quotes and orders subject to certain exceptions for midpoint and benchmark trades. Venue Harmonization would have required all trading on exchanges, ATSs and OTC to occur in the same pricing increments. In the Proposing Release,329 the Commission stated that it was concerned about the competitive dynamic between exchanges, ATSs, and OTC markets and that a potential contributing factor was the ability of OTC market makers to execute orders in price increments that are smaller than the price increments that exchanges and ATSs can practically provide.330 The Commission stated that applying the minimum pricing increment to trades across all venues would promote equal regulation and fair competition among market participants such as exchanges, OTC market makers and ATSs, particularly as it relates to retail order flow; 331 and that it was ‘‘reasonable to assume that . . . [applying] a minimum pricing increment to trades . . ., could result in greater competition between exchanges and ATSs with other OTC market makers, including wholesalers . . .’’ 332 However, the Commission also stated that it could not anticipate how OTC market makers would adjust to increased competitive pressure and whether a market-wide trading increment would yield a

333See Proposing Release, supra note 11, at
80326. 334See, e.g., Nasdaq Letter I at 17; Citadel Letter
I at 31; State Street Letter at 4; Citigroup Letter at 5; MFA Letter at 7, Letter from Nandini Sukumar, Chief Executive Officer, World Federation of Exchanges, dated Mar. 30, 2023 (‘‘World Federation of Exchanges Letter’’) at 5, STA Letter at 7, NYSE Letter I at 6; Nasdaq Letter I at 17, NYSE, Schwab, and Citadel Letter at 2, Brandes Letter at 2; Schwab Letter II at 6, Cambridge Letter at 6; B. Riley Letter at 1, Vanguard Letter at 5, Robinhood Letter at 40, 55; JPMorgan Letter at 6. 335See, e.g., Cboe Letter II at 9, IEX Letter I at 2, Nasdaq Letter I at 2, Citigroup Letter at 5, Pragma Letter at 1, Luke Peterson Letter; Chris Miller Letter, Amanda Kappes Letter. 336See Citadel Letter I at 4 and Robinhood Letter at 28. 337See Citigroup Letter at 5, Nasdaq Letter I at 16, World Federation of Exchanges Letter at 4, Better Markets Letter I at 13, Vanguard Letter at 4, IEX Letter III at 5, Drew Ferguson Letter at 1, Max Garrison Letter at 1, Lukas Boller Letter at 1, Trent Miller Letter at 1, Phillip Worts Letter at 1, James Letter at 1, Andrew Garley Letter at 1, Larry Douglas Letter at 1, Steve Sullivan Letter at 1, Luke Czarnota Letter at 1, Charles S Letter at 1, Melisa Virginillo Letter at 1, Melissa Hyer Letter at 1, Keagan Wethington Letter at 1, DH Letter at 1, Alex Riley Letter at 1, Trevor Capestany at 1, Marco Daeblitz at 1, Steven Sullivan Letter at 1. See also Patrick Sexton, EVP, General Counsel & Corporate Secretary, Cboe Global Markets, Inc., dated Aug. 23, 2023 (‘‘Cboe Letter III’’) at 9. 338See, e.g., SIFMA Letter II at 4, Citigroup Letter at 5, TradeStation Letter at 6, CCMR Letter at 27, Virtu Letter II at 7, Fidelity Letter at 13, BlackRock Letter at 9, Robinhood Letter at 20, JPMorgan Letter at 6, Morgan Stanley Letter at 4, TastyTrade Letter at 20 and Nasdaq Letter I at 18. 339See, e.g., JPMorgan Letter at 5; ICI Letter I at 17–18, Vanguard Letter at 5; IEX Letter I at 17 and BlackRock Letter at 9. 340See, e.g., Cboe Letter III at 10–11, IEX Letter I at 17–18, JPMorgan Letter at 6, Ontario Teachers et al. Letter at 2, NYSE Letter I at 6. 341See Proposing Release, supra note 11, at
80339. 342See infra section VII.D.1.a.
343See supra note 146.
344See, e.g., NYSE Rule 7.44 and BX Rule 4780. 345See, e.g., NYSE Arca Rule 7.44–E and IEX Rule 11.232. 346The Commission is not adopting the proposed 5 mils access fee cap because it is not adopting the $0.001 minimum pricing increment. As proposed, all protected quotes in NMS stocks priced $1.00 or more that would have been assigned a minimum pricing increment other than $0.001 would have been subject to the proposed 10 mils access fee cap. The Commission is adopting this same model—all protected quotes in NMS stocks priced $1.00 or more will be subject to the 10 mils access fee cap. 347See infra section VII.D.2.a. ‘‘positive, negative or neutral’’ net effect on retail price improvement.333 The Commission received several comments on the proposal to establish minimum pricing increments for trades, including comments related to Quote and Trade Harmonization,334 Venue Harmonization,335 statutory authority,336 rationale,337 impact on price improvement,338 exceptions to minimum pricing increment for trades,339 and exchange RLP programs.340 After considering comments and in light of changes from the proposal that the Commission is making to amended Rule 612, the Commission has decided, consistent with one of the Reasonable Alternatives set forth in the Proposing Release,341 not to adopt a minimum pricing increment for trades. As described above, the Commission is amending Rule 612 to adopt one smaller minimum pricing increment for quotes and orders that primarily focuses on those NMS stocks that are experiencing constraint with the $0.01 minimum pricing increment. A secondary impact of the changes to the minimum quoting increment should be that it helps to partially address the concerns related to fair competition between exchanges, ATSs, and OTC markets that proposing a market-wide trading increment was designed to address. Amended Rule 612 will reduce the minimum pricing increment for quotes and orders to $0.005 for certain NMS stocks that are priced equal to, or greater than, $1.00 per share which in turn also effectively reduces the increment that such stocks are able to trade in. Under amended Rule 612, OTC markets will continue to be able to trade more readily in comparatively smaller increments (e.g., $0.001 or $0.0001) than exchanges and ATSs, however, exchanges and ATSs will now be able to trade more regularly at smaller increments (i.e., $0.005 or $0.0025), compared to preexisting Rule 612, for those NMS stocks that are assigned the $0.005 minimum pricing increment. By effectively reducing the trading increment for such NMS stocks, which represent a significant amount of the daily trading volume (approximately 58%) and dollar volume (approximately 43%),342 the potential trade pricing discrepancy between exchanges, ATSs and OTC markets, while not harmonized, will be reduced. Market participants will be able to better compete based on the pricing of quotes and orders. Thus, because reducing the minimum quoting increment for a significant
amount of volume of NMS stocks, whether measured by trading or dollars, also effectively reduces the trading increments for those stocks, the concerns related to the ability of OTC market makers to trade in comparatively finer increments raised by the Commission in the Proposing Release will be partially addressed so that the Commission has determined not to adopt the minimum pricing increment for trading. However, because the amendment to Rule 612 only partially addresses the competitive dynamic between OTC market makers and exchanges and ATSs described in the Proposing Release, and furthermore allows OTC market makers to continue to execute trades in comparatively finer increments, the Commission staff will continue to monitor sub-penny trading to evaluate whether further action is appropriate for the protection of investors and to assure ‘‘fair competition among brokers and dealers, among exchange markets, and between exchange markets and markets other than exchange markets’’ in the national market system. The Commission’s simplified, incremental approach to amending Rule 612 focuses on addressing issues that have developed regarding quoting constraints for certain NMS stocks because of the $0.01 minimum pricing increment. Further, the amendment to Rule 612 will facilitate the transition of market participants and investors to the new tick size regime and the wider use of sub-penny quoting. The amendment, as adopted, also reduces the anticipated implementation costs compared to the proposed amendments to Rule 612. Finally, under amended Rule 612: (1) RLPs 343 that operate pursuant to Commission exemptions that either permit certain quoting and trading in increments of $0.001,344 or aggregate order flow at the midpoint,345 will be able to continue to operate without interruption and without changes to exchange rules or the grant of further exemptive relief by the Commission; (2) sub-penny price improvement will continue to be permitted consistent with the requirements of the rule; (3) and investors will continue to be able to manage their order flow and implement trading strategies through the use of midpoint orders and benchmark trades.
IV. Final Rule 610 of Regulation NMS—
Fees for Access to Quotations The Commission is adopting amendments to Rule 610(c)(1)(ii) as proposed with technical modifications to remove the reference to the minimum pricing increment. The Commission is not adopting proposed Rule 610(c)(1)(i) because it is unnecessary.346 Further, the Commission is adopting amendments to Rule 610(c)(2) as proposed with modifications to align the access fee caps for protected quotations in NMS stocks priced below $1.00 and those priced $1.00 and above.347 Finally, the Commission is removing outdated references to the ‘‘The Nasdaq Stock Market, Inc.’’ in Rule 610(c), as proposed, because the Nasdaq Stock Market is now a national

348See Proposing Release, supra note 11, at 80292. 349 17 CFR 242.600(b)(106). 350The Commission also stated that by imposing a uniform fee limitation of $0.003 per share, Rule 610(c) will promote equal regulation of different types of trading centers. See Regulation NMS Adopting Release, supra note 4, at 37595. 351See Regulation NMS Adopting Release, supra note 4, at 37502. 352See Regulation NMS Adopting Release, supra note 4, at 37545. 353A trade-through occurs when a trading center executes an order at a price that is inferior to the price of a protected quotation that is displayed by another trading center. See 17 CFR 242.600(b)(105) for the definition of trade-through under Regulation NMS. 354See Regulation NMS Adopting Release, supra note 4, at 37544 and 37595. 355See Regulation NMS Adopting Release, supra note 4, at 37545. 356See Regulation NMS Adopting Release, supra note 4, at 37498. 357The access fee caps were calculated based upon the then current fees that were charged by certain trading venues. See Regulation NMS Adopting Release, supra note 4, at 37545 (stating ‘‘the $0.003 fee limitation is consistent with current business practices, as very few trading centers currently charge fees that exceed this amount . . . [and those that do] do not account for a large percentage of the trading volume.’’). At the time the access fee caps were adopted, the minimum pricing increment for quotes and orders priced $1.00 or greater was $0.01 as Rule 612 was adopted at the same time as Rule 610(c). 358See Proposing Release, supra note 11, at
80289. See also Letter from John Ramsay, Chief
Market Policy Officer, Investors Exchange LLC, dated Oct. 19, 2023 (‘‘IEX Letter IV’’) at 5–10; Nasdaq Letter I at 4. 359See also Letter from Theodore R. Lazo, Managing Director & Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, Commission, dated Mar. 29, 2017, at 8 (stating exchanges have developed order types primarily designed to avoid paying high fees, market participants implement complex routing strategies (consistent with their best execution obligations) to avoid paying high exchange access fees in favor of lower costs ATSs and the market place has seen a high level of fragmentation ‘‘driven by each exchange group’s desire to provide a variety of pricing models within the wide pricing range between 0 and 30 mils.’’) (‘‘SIFMA 2017 Letter’’). 360See infra section VII.C.2, note 1107 and accompanying text and note 1457 (showing that the primary reason that access fees remain near 30 mils on most exchanges is to fund rebates) and Panel A of table 4, infra section VII.C.2.c. 361See infra tables 4 and 5 showing within the large exchange groups multiple exchanges each with different fee and rebate models. See also e.g., SIFMA 2017 Letter, supra note 359 at 8 (stating ‘‘the high level of fragmentation . . . is in part driven by each of the exchange group’s desire to provide a variety of pricing models within the wide pricing range between 0 and 30 mils.’’). 362For example, the EMSAC considered, among other things, whether the access fee cap should be modified. See EMSAC Archives, supra note 4. See also Concept Release on Equity Market Structure, supra note 59. securities exchange and the language is redundant.348 Specifically, under Rule 610(c), as amended, a trading center 349 will not be permitted to impose, or permit to be imposed, any fee or fees for the execution of an order against a protected quotation of the trading center or against any other quotation of the trading center that is the best bid or best offer of a national securities exchange or the best bid or best offer of a national securities association in an NMS stock that exceed or accumulate to more than $0.001 per share if the price of the protected quotation or other quotation is $1.00 or more, and the fee or fees will not be permitted to exceed or accumulate to more than 0.1% of the quotation price per share if the price of the protected quotation or other quotation is less than $1.00. The Commission is also adopting Rule 610(d) as proposed to require that all exchange fees and rebates be determinable at the time of execution. For the reasons discussed below, these amendments to Rule 610 are appropriate for the modern national market system. A. Background Rule 610(c) was adopted in furtherance of the Congressional directives in section 11A of the Exchange Act and was designed to promote fair and non-discriminatory access to quotations displayed in the national market system.350 Rule 610(c) seeks to ensure the fairness and accuracy of displayed quotations by
establishing an outer limit on the cost of accessing such quotations 351 and was designed to help to ensure that orders placed in the national market system reflect the best prices available. The access fee caps are necessary to achieve the purposes of the Exchange Act, including section 11A(c)(1)(B) of the Exchange Act, which authorizes the Commission to adopt rules assuring the fairness and usefulness of quotation information. The Commission has stated that for quotations to be fair and useful, ‘‘there must be some limit on the extent to which the true price for those who access quotations can vary from the displayed price.’’ 352 Rule 610 was adopted at the same time as Rule 611, the Order Protection Rule, which established intermarket protection against trade-throughs 353 for all NMS stocks. Rule 610(c) was designed to preclude trading centers that posted protected quotations from raising their fees in an attempt to take improper advantage of the trade-through protections adopted under Rule 611.354 The Commission designed the access fee caps to preserve the benefits of the strengthened price protection under Rule 611 and more efficient linkages among trading centers that were developed under Regulation NMS to access protected quotations that could be disrupted if substantial fees were charged.355 At the time of adoption, the Commission recognized the importance of protecting the best displayed and accessible prices in promoting deep and stable markets that minimize investor costs. In this regard, the Commission stated that Rule 611 would help to minimize investor transaction costs, which is ‘‘the hallmark of efficient markets’’ and a ‘‘primary objective of the [national market system].’’ 356 Rule 610 is an important component in supporting these goals. Market participants, including investors, need fair and efficient access to the best priced quotations in the national market system. Therefore, Rule 610(c) remains an important part of the national market system to achieve the purposes of the Exchange Act, preserve the benefits of price protection, and help ensure that displayed quotations reflect something close to actual costs incurred for the transaction.357 B. Issues Raised in the Existing Market Structure and the Need for the Amendments The national market system of 2024 is significantly different than the national market system that existed when Regulation NMS was adopted in
2005.358 Since Regulation NMS was
adopted, new trading practices, order types, and routing strategies have developed that did not exist when Rule 610 was adopted.359 In addition, exchanges have developed complex fee structures that charge the outer limits permitted for accessing protected quotations and use those fees to fund rebates, which have the effect of creating a discrepancy between displayed prices and net prices.360 Finally, the national market system has seen a proliferation of new exchanges, often within the same exchange group, that implement varied pricing models to attract specific market participants to their markets.361 The Commission has monitored these developments and engaged extensively with market participants about the impact of the modern fee structures on fair and efficient access to protected quotations as well as the usefulness and accuracy of such quotations.362 Market participants have considered and suggested reductions in the access fee caps for many years to address market distortions (as further discussed

363See, e.g., infra notes 371–376 and accompanying text and infra section IV.B.2 and IV.D. 364See, e.g., Letter from Theodore R. Lazo, Managing Director & Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, Commission, dated May 24, 2018, at 2 (commenting on File No. S7–05–18 ‘‘Transaction Fee Pilot for NMS Stocks’’) (stating ‘‘On several occasions, SIFMA has recommended that the Commission reduce the access fee cap to no more than five cents per 100 shares because the cap has not been adjusted to reflect market developments since Regulation NMS was adopted more than a decade ago.’’) (‘‘SIFMA 2018 Letter’’); Goldman 2018 Letter at 1 (stating ‘‘a reduction in the Fee Cap from $0.0030 to $0.0010 per share could be supported today [2018] and would be better calibrated with the present-day trading and execution costs, which have decreased substantially since 2005’’); SIFMA 2017 Letter, supra note 359, at 3 (stating the Commission should consider ‘‘reducing the access fee cap to no more than $0.0005 for all securities’’ because ‘‘[s]ince Reg. NMS was adopted, spreads have narrowed and commissions have decreased, making the existing cap of access fees outsized relative to today’s market realities.’’); Letter from Theodore R. Lazo, Managing Director & Associate General Counsel, SIFMA, to Mary Jo White, Chair, Commission, dated May 24, 2015, at 2–3 (supporting reduction in access fee to ‘‘no more than five cents per hundred shares’’ because access fees are ‘‘an outsized element of transaction costs that in turn distorts price discovery and contributes to market complexity, both on- and off-exchange’’ and further stating ‘‘market participants regularly implement complex order routing strategies . . . that divide, route and re-route orders and parts of orders, when possible, to market centers that enable them to avoid paying excessive access fees’’ and also stating ‘‘access fees have increased complexity on exchanges . . . through the proliferation of exchange order types designed to avoid access fees.’’); Letter from Daniel Keegan, Managing Director, Head of Americas Equities, Citigroup Global Markets Inc. to Elizabeth Murphy, Secretary, Commission, dated Aug. 7, 2014, at 5 (‘‘Citigroup 2014 Letter’’) (commenting on Concept Release on Equity Market Structure and stating ‘‘[t]he SEC should explore the impacts on the overall markets of complex market structure issues such as maker/ taker pricing and access fees’’ and ‘‘[a]t a minimum, the cap on access fees should be reduced to below 10 mils’’); Letter from Theodore R. Lazo, Director & Associate General Counsel, SIFMA, to Mary Jo White, Chair, Commission, dated Oct. 24, 2014, at 2 (providing ‘‘Recommendations for Equity Market Structure Reforms’’ including ‘‘that exchange access fees be significantly reduced, to no more than five cents per 100 shares’’); NYT Dealbook OpEd: How to Improve Market Structure, Curt Bradbury, Chief Operating Officer, Stephen’s Inc. and Kenneth E. Bentsen, Jr.,
President and CEO, SIFMA (SIFMA Market Structure Task Force Recommendations), dated July 14, 2014 (stating ‘‘Access fees charged by exchanges and other venues should be dramatically reduced, if not eliminated. While brokers are legally required to route their orders to the exchange that is quoting the best price—so called ‘protected quotes’—the exchanges are permitted to charge relatively high fees for accessing these quotes:
currently 30 cents for every 100 shares. These fees have distorted market pricing as they are a significant percentage of overall trading costs and are several times higher than the fees charged by off-exchange venues. As a result, brokers often avoid routing their orders to exchanges. Exchanges also rebate most of their access fee revenue through price structures such as ‘maker/taker.’ These developments have led to a proliferation of order types designed to avoid access fees and capture rebates, and that proliferation, in turn, adds complexity to the system, requires continuing technology changes and creates potential for market instability. The Securities and Exchange Commission should reduce the current cap on access fees to no more than 5 cents per 100 shares, and indeed should consider eliminating access fees altogether.’’); Bradley Hope & Scott Patterson, ‘‘NYSE Plan Would Revamp Trading,’’ WALL ST. J. (Dec. 17, 2014), available at http://www.wsj.com/ articles/intercontinental-exchangeproposing-major￾stock-market-overhaul-1418844900 (stating that since 2005, when the fee cap of $0.003 per share was chosen, competitive and technological advancements have led to decreased costs (spreads and commissions), and as a result, access fees have become a larger portion of overall transaction costs); ICE’s Six Recommendations for Reforming Markets,’’ WALL ST. J. (Dec. 18, 2014), available at http://blogs.wsj.com/moneybeat/2014/12/18/ices￾six-recommendations-for-reformingmarkets/ (recommending reduction in the access fee cap to $0.0005 in conjunction with adoption of a ‘‘trade at’’ rule, ‘‘eliminating maker-taker pricing’’ and stating ‘‘[w]ith myriad different make-take and take￾make pricing models in existence today, we believe the potential conflicts and complexity that ensue from the maker-taker models outweigh any perceived benefits. We believe there are better options available to incentivize market-makers to maintain two-sided quotes and reduce intraday volatility’’ including incentive programs that would obligate market makers to provide liquidity); Joe Ratterman, Chief Executive Officer, & Chris Concannon, President, BATS, ‘‘Open Letter to U.S. Securities Industry Participants Re: Market Structure Reform Discussion,’’ at 1 (Jan. 6, 2015), available at http://cdn.batstrading.com/resources/ newsletters/OpenLetter010615.pdf (stating access fee cap ‘‘requires a substantial reduction and restructuring’’ and further stating the cap ‘‘has remained unchanged for far too long and has never been reevaluated for potential market distortions given the substantially altered broker models and reductions in commissions since the implementation of Regulation NMS.’’). 365See IEX Letter IV at 8. See also e.g., Letter from Paul M. Russo, Managing Director, Goldman Sachs & Co. LLC, to Brent J. Fields, Secretary, Commission, at 3 (May 24, 2018), available at https://www.sec.gov/comments/s7-05-18/s70518- 3711788-162473.pdf (‘‘Goldman 2018 Letter’’) (commenting on
File No. S7–05–18 ‘‘Transaction Fee Pilot for NMS Stocks’’) at 2 (stating in 2018 ‘‘In the thirteen years since the Commission adopted the Fee Cap, spreads have considerably narrowed and commission rates have contracted. However, the Fee Cap has remained unadjusted. There is a well-developed, general consensus among market participants that a [30 mil] per share Fee Cap is an outdated benchmark for execution costs in today’s trading environment. As a limit, it creates an upper￾range that is simply too high and far from representative of true prices in the marketplace.’’). 366See infra section VII.D.2.a. 367See SRO fee schedules, which are available on each SRO’s website. See also infra section VII.C.2.c,
table 4. This discussion focuses on exchange fees
because, currently, exchanges are the only trading centers that display protected quotations. If an ATS or OTC market maker displayed a protected quotation, its fees would be subject to the access fee caps under Rule 610(c). 368A few exchanges have adopted a ‘‘taker￾maker’’ pricing model (also called an inverted model), in which they charge a fee to the provider of liquidity and pay a rebate to the taker of liquidity. See, e.g., Nasdaq BX fee schedule available at http://www.nasdaqtrader.com/ trader.aspx?id=bx_pricing (as of Feb. 2024); NYSE National fee schedule available at https:// www.nyse.com/publicdocs/nyse/regulation/nyse/ NYSE_National_Schedule_of_Fees.pdf (as of Jan. 1, 2024); Cboe BYX fee schedule available at https:// www.cboe.com/us/equities/membership/fee_
schedule/byx/ (as of Feb. 2024); and Cboe EDGA fee
schedule available at https://www.cboe.com/us/
equities/membership/fee_schedule/edga/ (as of Feb., 2024). See also infra section VII.C.2.c, table 4. For taker-maker exchanges, the amount of the maker fee charged to the provider of liquidity is not bounded by the Rule 610(c) access fee cap because such fee is not a charge to access the market’s best bid/offer for NMS stocks, but such fees typically are no more than $0.0030. below) 363 and better reflect evolutions in the market since Regulation NMS was adopted.364 One commenter stated that ‘‘[d]igital innovations and efficiencies since 2005 have undoubtedly reduced the costs of collecting, storing, processing, and transmitting information’’ and that ‘‘despite reduced costs, increased efficiency, and all the new data and computing power available, the access fee cap has remained fixed at an inflated level that reflects the technology capabilities of 2005.’’ 365

1. Amendments to Rule 612
   As discussed above, the Commission is adopting a smaller minimum pricing increment of $0.005 for certain NMS stocks. Because the Commission is adopting the smaller $0.005 increment, it is also amending the preexisting access fee caps in Rule 610(c) to prevent introducing new pricing distortions in the market.366 For protected quotations priced $1.00 or more, the Commission is adopting a 10 mil access fee cap and has decided that this level is appropriate based on several additional considerations, as discussed in the following sections.
2. Exchange Fee Models
   The exchange fee structures in the national market system that have developed under Rule 610 are complex and consist of fees charged and rebates paid to market participants. As stated above, exchanges using a ‘‘maker-taker’’ pricing model, pay a rebate to a ‘‘maker’’ or provider of liquidity, which is funded by the fees charged to a ‘‘taker’’ of liquidity.367 The exchange earns as revenue the difference between the fee paid by the taker and the rebate paid to the provider or maker.368 For maker￾taker exchanges, the amount of the taker fee is limited by the access fee caps imposed by Rule 610(c). The Rule 610(c) access fee caps apply to the fees assessed on an incoming order that executes against a resting protected quote, but do not apply to the rebates. However, the Rule 610(c) access fee caps indirectly limit the average amount of the rebates that an exchange offers to about $0.0030 per share in order to maintain net positive transaction revenues. Thus, an exchange may charge higher access fees to fund higher

369This was one of the concerns the Commission identified when it approved the access fee caps. See Regulation NMS Adopting Release, supra note 4, at
37545. (‘‘[T]he fee limitation is necessary to achieve
the purposes of the Exchange Act. Access fees tend to be highest when markets use them to fund substantial rebates to liquidity providers, rather than merely to compensate for agency services.’’). 370See, e.g., Letter from Patrick Sexton, EVP, General Counsel & Corporate Secretary, Cboe Global Markets, Inc., dated Apr. 5, 2024 (‘‘Cboe Letter IV’’) at 2–5; Letter from Brett Kitt, Vice President, Deputy General Counsel, Nasdaq, Inc., dated Mar. 25, 2024 (‘‘Nasdaq Letter IV’’) at 3–5; Nasdaq Letter III at 2–5. 371See, e.g., Letter from Richard Steiner, Global Equities Liaison to Regulatory & Government Affairs, RBC Capital Markets, to Elizabeth Murphy, Secretary, Commission, at 2–3 (Nov. 22, 2013), available at https://www.sec.gov/comments/s7-02- 10/s70210-411.pdf (‘‘RBC Capital Letter’’) (commenting on potential equity market structure initiatives). 372See, e.g., Larry Harris, ‘‘Maker-Taker Pricing Effects on Market Quotations,’’ at 24–25 (Nov. 14, 2013). 373See, e.g., Curt Bradbury, Market Structure Task Force Chair, Board of Directors, SIFMA, and Kenneth E. Bentsen Jr., President and Chief Executive Officer, SIFMA, Opinion, ‘‘How to Improve Market Structure,’’ N.Y. Times (July 14, 2014), available at http://dealbook.nytimes.com/ 2014/07/14/how-to-improve-market-structure/?_r=0 (stating that the ‘‘proliferation of order types designed to avoid access fees and capture rebates . . . adds complexity to the system, requires continuing technology changes and creates potential for market instability’’ and recommending access fees charged by exchanges be ‘‘dramatically reduced, if not eliminated’’); RBC Capital Letter at 2; and Letter from Haim Bodek, Managing Principal and Stanislav Dolgopolov, Regulatory Consultant, Decimus Capital Markets, LLC, dated Apr. 25, 2016, at 3 and 11 (‘‘Decimus 2016 Letter’’); Vanguard Letter at 6. 374See, e.g., Menkveld, Albert J., Bart Zhou Yueshen, and Haoxiang Zhu, ‘‘Shades of darkness:
A pecking order of trading venues.’’ Journal of Financial Economics 124, no. 3 (2017) at 503–534, available at https://www.mit.edu/∼zhuh/ MenkveldYueshenZhu_2017JFE_dark.pdf; RBC Capital Letter at 2. 375See, e.g., RBC Capital Letter at 2–4; Letter from Mehmet Kinak, Vice President—Global Head of Systematic Trading & Market Structure, and Jonathan Siegel, Vice President—Senior Legal Counsel (Legislative & Regulatory Affairs), T. Rowe Price, to Brent J. Fields, Secretary, Commission, dated June 12, 2018, at 2, available at https:// www.sec.gov/comments/s7-05-18/s70518-3832746- 162769.pdf (sec.gov) (commenting on File No. S7– 05–18 ‘‘Transaction Fee Pilot for NMS Stocks). 376See, e.g., Stanislav Dolgopolov, ‘‘The Maker￾Taker Pricing Model and its Impact on the Securities Market Structure: A Can of Worms for Securities Fraud?’’ 8 Va. L. & Bus. Rev. 231, 270 (2014), available at http://papers.ssrn.com/sol3/ papers.cfm?abstract_id=2399821 (retrieved from SSRN Elsevier database). 377See infra section VII.C.2.c and table 4 therein for additional analysis and discussion of the complexity of fee and rebate schedules. liquidity rebates.369 Some exchanges state that rebates are necessary in order for them to attract trading volume.370 In recent years, a variety of concerns have been stated about the prevailing maker-taker fee model, and particularly the rebates paid by the exchanges. Those include that the fee/rebate models: (1) undermine market transparency since displayed prices do not account for exchange transaction fees or rebates and therefore do not reflect the net economic costs of a trade; 371 (2) serve as a way to effectively quote in sub-penny increments on a net basis when the effect of a maker-taker exchange’s sub-penny rebate is taken into account even though the minimum quoting increment is expressed in full pennies; 372 (3) introduce unnecessary market complexity through the proliferation of new exchange order types (and new exchanges) designed solely to take advantage of pricing models; 373 (4) drive orders to non￾exchange trading centers that do not display quotes as market participants seek to avoid the higher fees that exchanges charge to subsidize the rebates they offer to attract liquidity; 374 and (5) benefit sophisticated market participants like market makers and proprietary traders at the expense of other market participants.375 Further, the prevailing access fee structure creates potential conflicts of interest for broker-dealers, who must provide the best execution to their customers’ orders while facing potentially conflicting economic incentives to avoid fees or earn rebates from the trading centers to which they direct those orders for execution.376 a. Transparency The chart below illustrates with a hypothetical example the Commission’s concern that exchange fee/rebate models can undermine price transparency. While some investors may invest heavily to fully map out the fee schedules, these schedules are complex and thus doing
so would be costly, consequently it is likely that not all investors fully map out fee schedules.377 The Commission examined data for NMS stocks to demonstrate the price variations that can occur under the exchange fee and rebate schedules. The chart above shows a common scenario for a hypothetical stock, with four exchanges all displaying the same best bid of $20.56. However, due to differing fee schedules, each of the four represents a different net bid to market participants. Furthermore, due to volume-based price fee tiers, some exchanges’ net bids differ for different market participants. The fee schedules used to create this example are taken ER08OC24.000</GPH> $21)_56300 $21)_56200 I $21)_56100 '5 I s2o_561JOO !! D.. ~ $2()_55900 $21)_55800 $20_55600 Example of hypothetical stock, best bid net of fees t>est and worst 'take' tiers shown} Ex£hance A (Maker-Tam, no volume tie,-s) Ex£hange B (Inverted, volume tiers) Exchange C [Maker-Take,-, no volume tiers) $21)_557111 Exchange D (Maker-Take,-, volume tiers}

378See also infra section VII.B.3.
379See, e.g., Letter from John A. Zecca, Executive Vice President, Global Chief Legal, Risk and Regulatory Officer, Nasdaq, Inc., dated Aug. 9, 2023 (‘‘Nasdaq Letter II’’) at 5–6; Larry Harris, ‘‘Maker￾Taker Pricing Effects on Market Quotations,’’ at 5 (Nov. 14, 2013), available at https://en￾coller.tau.ac.il/sites/nihul_en.tau.ac.il/files/media_ server/Recanati/management/seminars/account/ Maker.pdf; Letter from Richie Prager, Managing Director, Head of Trading and Liquidity Strategies, BlackRock, Inc., to Mary Jo White, Chair, SEC, at 2 (Sept. 12, 2014), available at https://www.sec.gov/ comments/s7-02-10/s70210-419.pdf; Michael Brolley & Katya Malinova, ‘‘Informed Trading and Maker-Taker Fees in a Low Latency Limit Order Market,’’ at 2 (Oct. 24, 2013), available at http:// papers.ssrn.com/sol3/papers.cfm?abstract_ id=2178102. 380As discussed throughout, these concerns include, for example, undermining price transparency, introducing unnecessary complexity through the proliferation of new exchange order types and order routing strategies, added market fragmentation, creating or exacerbating potential conflicts of interest between brokers and their customers, and in NMS stocks that are tick constrained, assessing a higher cost to liquidity demanders. 381See also infra sections VII.B.3 and VII.C.2. 382See also infra sections VII.B.3 and VII.C.2. 383See, e.g., Concept Release on Equity Market Structure, supra note 59 (evaluating broadly the performance of market structure since Regulation NMS, particularly for long-term investors and for businesses seeking to raise capital, and soliciting comment on whether regulatory initiatives to improve market structure are needed). 384See infra section VII.A and infra notes 1733 and 1734 and accompanying text. 385See infra note 1005. 386See Proposing Release, supra note 11, at
80292. See also infra note 1005 and accompanying
text.
387See infra section VII.D.2.
388See infra note 1005 and accompanying text. 389See infra sections IV.D.1.b and VII.D.2.c. See also Proposing Release, supra note 11, at 80330. 390See, e.g., Vanguard Letter at 6. 391See infra section VII.D.2.d. 392Examples of such complex order types include post-only orders or add-liquidity only orders that seek to only provide liquidity to gain a rebate and will not upon entry, execute against a resting order on the other side of the market so as to avoid paying a transaction fee. See, e.g., BZX Rule 11.9(c)(6) (defining a BZX Post Only Order); MEMX Rule 11.16(i)(6) (defining Post Only); Nasdaq Equity, Rule 4702(4)(A)(defining a Post-Only Order); NYSE Rule 7.31(e)(2) (defining an ALO Order); NYSE Arca Rule 7.31(e)(2) (defining an ALO Order). See also Staff Report on Algorithmic Trading in the U.S. Capital Markets (Aug. 5, 2020), available at https:// www.sec.gov/files/Algo_Trading_Report_2020.pdf. from various exchange fee schedules as of June 2024. Exchange A charges the maximum allowed access fee of 30 mils, and so market participants that trade with the Exchange A bid receive a net price of $20.557 per share ($20.56 minus a $0.003 fee). Exchange B has an inverted ‘‘taker-maker’’ fee schedule and so pays a rebate to participants who remove liquidity, with differing rebates based on volume tiers. In this example, a market participant that trades with the bid on Exchange B receives a net price of $20.5616 if in the best tier ($20.56 plus a $0.0016 rebate). Exchange C charges an access fee of 29.5 mils, meaning that a market participant that trades with the Exchange C bid would receive a net price of $20.55705 per share ($20.56 minus the $0.00295 fee). Lastly, Exchange D charges an access fee of 29 mils to those in the best tier, so such a participant trading with Exchange D receives a net price of $20.5571. Despite all four exchanges showing the same bid of $20.56, the bids net of fees vary from a low of $20.557 to a high of $20.5616, a substantial difference of $0.0046 per share (nearly half the current minimum pricing increment). b. Liquidity and the NBBO The price of liquidity for investors in terms of buying and then later selling a security is the spread between the best bid and the best offer, which is reflected by the NBBO. For those market participants that provide liquidity, such as market makers, this spread similarly represents the market price for providing those liquidity services at any given point in time. More recently, trading center models that pay rebates to liquidity providers (which rebates are funded on a transaction basis by charging an access fee to the taker of liquidity) pay an additional return to the liquidity provider separate from what would be captured though the spread, which may then lead those liquidity providers to lower the spread (that is, the implicit price for their liquidity provision services) more than they would otherwise.378 These prices are reflected in the NBBO, which is disseminated in the
national market system. Others have stated that the maker￾taker model has positive effects by enabling exchanges to compete with non-exchange trading centers and by narrowing quoted spreads through subsidizing posted prices,379 but these potential benefits should be balanced against the market distortions associated with the fee and rebate models mentioned above.380 Further, rebates paid to liquidity providers under maker￾taker fee schedules may narrow displayed spreads in some securities by subsidizing liquidity providers (i.e., by allowing a maker to post a more aggressive price than it may have in absence of a rebate), and these prices may not reflect the underlying economics for the NMS stock.381 In turn, that displayed liquidity may establish the NBBO,382 which is often used as the benchmark for marketable order flow, including retail order flow, that is executed off-exchange by either matching or improving upon those distortive prices.383 Accordingly, rebates may distort quotation prices that are displayed in the national market system.384 High rebates also incentivize excessive intermediation,385 especially in very liquid securities, to the extent rebates induce or exacerbate an oversupply of liquidity at the best bid or offer.386 As discussed below, some stocks will trade with a quoted spread one tick wide, whether the tick size is $0.01 or $0.005. In those cases, quoted spread is unable to adjust lower due to the tick size, so the rebate paid to liquidity providers, which is funded by an access fee paid by liquidity takers, acts as a wealth transfer from liquidity takers to liquidity providers. This wealth transfer in turn unnecessarily incentivizes the provision of liquidity (i.e., encourages providing liquidity in order to earn the rebate), thereby creating an environment with too much liquidity supplied relative to liquidity demanded and leading to rebates for faster liquidity suppliers and a higher cost to liquidity takers.387 In other words, excessive quoting in tick￾constrained securities to earn rebates undermines price transparency because displayed prices and the associated size at those prices do not reflect the underlying economics of supply and demand, but rather reflect the impact of fees or rebates.388
c. Potential Conflicts of Interest
As more fully discussed below and in the Economic Analysis, access fees and rebates create potential broker-dealer conflicts of interest in order routing, particularly to the extent the fees and rebates are not passed through to the customer.389 For example, this structure can create an incentive for a broker￾dealer that fully absorbs transaction costs or rebates potentially to route customer orders to an exchange in order to avoid fees that are paid by the broker￾dealer or to receive the highest rebate paid.390 Lowering the access fees caps will help alleviate potential conflicts of interest.391 d. Market Complexity Exchange fee and rebate models under preexisting Rule 610(c) have also led to the development of a variety of complex order types, including those that allow market participants to avoid paying access fees or to ensure that rebates are collected.392 Further, exchange fee and rebate models are another way exchanges differentiate themselves from each other and from other trading centers to attract order flow. The

393See infra note 1081 and accompanying text. 394See supra note 361 and infra note 1764. 395See Proposed Rule 610(c); Proposing Release, supra note 11, at 80269. 396See Proposed Rule 610(c); Proposing Release, supra note 11, at 80269. 397See Proposing Release, supra note 11, at
80290. See also infra notes 1423–1424
accompanying text and sectionVII.D.2.a. As discussed in greater detail below, the amendments to Rule 612 do not include the proposed $0.001 minimum pricing increment, as proposed. Therefore, although the Commission proposed a 5 mil access fee cap to correspond to the $0.001 minimum pricing increment, the 5 mil access fee cap is not necessary because the Commission is not adopting the proposed $0.001 minimum increment. See infra section IV.D.1.a. 398See infra section VII.D.2.a. 399See infra sections IV.D.1.c and VII.D.2.b. 400See infra sections IV.D.1.c. and IV.D.1.d. 401See Proposing Release, supra note 11, at
80288. See also infra sections IV.D.1.b.and
VII.C.2.c, specifically table 4. While Rule 610(c) limits the fees assessed against an incoming order that executes against a resting protected quote, it does not address the rebates that may be paid. 402See infra section VII.D.2.a. 403See infra note 1096 and adjacent text and
section VII.C.2.c, table 4 (analyzing fee and rebate
schedules and stating the current structure of fees and rebates is complex and constantly changing). 404See infra section VII.D.2.d. 405See, e.g., Better Markets Letter I at 16; Brandes Letter at 3; Ontario Teachers et al. Letter at 1–2; IEX Letter IV at 7–8; Verret Letter III at 5–6; Letter from John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, dated Apr. 19, 2024 (‘‘IEX Letter VI’’) at 4. See also supra IV.D.1 (discussing comment letters). 406See infra section VII.D.2.d. variability of fee and rebate models (often within the same exchange group) introduces additional market complexity and fragmentation because it encourages the creation of new exchanges that offer different pricing structures to attract different types of market participants or trading strategies. Moreover, the drive to establish novel and competitive fee schedules results in frequent fee schedule changes (typically on a monthly basis), which adds uncertainty and complexity to the marketplace because market participants must continually update their routing tables to reflect these price changes.393 A higher cap allows for a wider range of possible access fees (i.e., $0–$0.0030) and more variability in exchange fees, which introduces additional complexity to the market.394
C. Proposal To Amend 610(c)
To accommodate the amendments to Rule 612 and to address the issues that have developed with the fee schedules for protected quotes under Rule 610(c), the Commission proposed to amend Rule 610(c) by reducing the level of the access fee caps for all protected quotations in NMS stocks. For protected quotations in all NMS stocks priced $1.00 or more, the proposal introduced two lower access fee caps to accommodate the proposed minimum pricing increments under proposed Rule 612 for quotations priced equal to or greater than $1.00 per share.395 Specifically, for all protected quotations in NMS stocks priced $1.00 or more per share and assigned a proposed minimum pricing increment greater than $0.001, the Commission proposed a 10 mil access fee cap; and for all protected quotations in NMS stocks priced $1.00 or more per share and assigned the proposed $0.001 minimum pricing increment, the Commission proposed a 5 mil access fee cap. For all protected quotations in NMS stocks priced less than $1.00 per share, the Commission proposed to reduce the access fee cap to 0.05% of the quotation price.396 The Commission received many comments on the proposed amendments to Rule 610(c). The comments are discussed more fully below. D. Final Rule 610(c) The amended access fee caps reflect several considerations by the Commission as well as input from commenters. For protected quotations priced $1.00 or more, the Commission is adopting a 10 mil access fee cap. This level is appropriate based on several considerations. First, because the Commission is adopting the $0.005 increment for certain NMS stocks under amended Rule 612, it is also reducing the level of the preexisting access fee caps in Rule 610(c) in order to prevent the price distortions that would occur if access fees were able to be set at more than half of the minimum pricing increment (i.e., a protected quotation with an access fee that exceeds half the minimum pricing increment economically would be represented at the next less aggressive pricing increment).397 A 10 mil access fee cap is sufficiently below the smallest minimum pricing increment (i.e., $0.005) so as to not create new pricing distortions.398 Second, in adopting the 10 mil access fee cap, the Commission also considered the impact of the reduction on the agency market business model. A 10 mil access fee cap is at a level that will allow the exchanges to maintain their current net capture for executions of NMS stocks priced $1.00 or greater.399 The 10 mil access fee cap also should help to reduce distortions and complexities under the fee structures that have developed under the preexisting access fee caps levels.400 As discussed above, under the preexisting access fee caps, many exchanges charge access fees at or near the highest permitted levels under preexisting Rule 610(c) as a means to fund rebates.401 Access fees charged at the highest level permitted under the preexisting rule and the rebates they fund harm price transparency because
the displayed price does not accurately reflect the underlying economics of a decision to post a protected quotation at a particular price (i.e., the market participant’s assessment of the price of liquidity for the security is distorted by the subsidy provided by the rebate), or to access a protected quotation at a particular price (i.e., the displayed price does not reflect the additional cost of the access fee).402 The negative impact on price transparency is exacerbated when various exchanges have different fees and rebates and make frequent updates to those rates, making the comparison of net prices unnecessarily complex and difficult.403 Further, reducing the level of the access fee caps to the adopted levels will reduce complexity in the market because it will (1) reduce the incentives to use certain complex order types that are designed to avoid high fees/garner large rebates, (2) potentially reduce the number of fee changes in the market and accompanying frequent changes to complex order routing strategies, and (3) may discourage further market fragmentation.404 Reducing the amount of rebates by reducing the access fee caps to 10 mils also will reduce the magnitude of potential conflicts of interest in the market. Finally, in determining to adopt the 10 mil access fee cap, the Commission has considered input from commenters, including market participants. Commenters stated that the reduced 10 mil access fee cap will better reflect current market rates and the increased efficiencies from electronic trading and other market structure changes, all of which have reduced trading costs since Rule 610 was originally adopted.405 In addition, the Commission is retaining the uniform access fee cap structure whereby the access fee caps are assigned based solely upon the price of the protected quotation. In other words, the Commission is adopting the 10 mil access fee cap for all protected quotes priced $1.00 or more. Maintaining the preexisting uniform structure of the access fee caps helps ensure that the requirements under Rule 610(c) do not increase the fee structure complexity or introduce unintended consequences (such as oscillations) that would create additional costs for market participants.406

407See infra section VII.D.2.c.
408See generally, Regulation NMS Adopting Release, supra note 4. 409Section 11A(c)(1)(B) of the Exchange Act. See Regulation NMS Adopting Release, supra note 4, at 37545. 410See infra section VII.D.2.b. As discussed below, the level of the adopted access fee cap for protected quotes in NMS stocks priced $1.00 or more is consistent with the current level charged by some trading centers that do not post protected quotes and therefore are not subject to the preexisting access fee caps under Rule 610(c). Specifically, the fees charged by some ATSs for execution services are often in the range of 10 mils for access to their liquidity. See infra note 1118 and accompanying text and infra section VII.C.2. This level reflects a competitive rate for providing access to liquidity, and hence represents a reasonable level for amending the access fee caps for protected quotes. See also e.g., Goldman 2018 Letter at 4 (stating ‘‘a reduction of the Fee Cap to $0.0010 per share is reasonable and would be better calibrated with today’s market pricing.’’). According to one commenter, while the ‘‘overwhelming proportion of transaction volume executed on national stock exchanges is subject to the maximum access fee of 30 mils. . .volume executed on ATS’s and other venues outside of exchanges is typically subject to substantially lower costs of access, in the range of ten mils and lower.’’). IEX Letter IV at 8. 411See also infra sections VII.C.2 and VII.D.2, and
table 14. As discussed below, the Commission
estimates for purposes of this release that exchange net capture is 2 mils while also recognizing that net capture can range from approximately 2 to 6 mils. See infra note 1103. 412See infra section IV.D.1.c. See also Proposing Release, supra note 11, at 80290–91. 413See infra section VII.D.2. See also Proposing Release, supra note 11, at 80292 and at 80309 (stating because ‘‘compensation is above what would exist in a competitive market there is an increased incentive to provide liquidity via limit orders, so queues of limit orders tend to be longer, wait times to get a limit order executed also tend to be longer, and, thus the likelihood that the market moves away from an investor’s limit order increases, leading to lower overall fill rates for limit orders’’) and at 80329 (stating ‘‘[t]he primary beneficiaries of the reduction in the access fee cap would be liquidity demanders. For stocks with narrow spreads such as tick-constrained stocks, a 30 mil access fee can increase the cost of demanding liquidity by as much as 60%. Consequently, reducing the access fee significantly reduces the cost of demanding liquidity in the predominant maker-taker trading environment. This effect coupled with the expected decrease of liquidity suppliers can be expected to decrease competition to provide liquidity. Less competition to provide liquidity means that queue lengths could decrease and fill rates increase because it would be easier to get to the front of the order book. This effect could allow non high frequency traders more opportunity to fill orders using liquidity-providing instead of liquidity-demanding transactions.’’). See also IEX Letter IV at 2, 6–8. 414See, e.g., IEX Letter IV at 1; IEX Letter VI at 1; Better Markets Letter II at 1; We The Investors Letter dated Mar. 30, 2023 at 2; Letters from Chris Robinson, dated Mar. 3, 2023; William Bledsoe, Jr., dated Feb. 28, 2023; Ryan Macarthur, dated Feb. 24, 2023; Julio Tello, dated Feb. 24, 2023; David Genco, Jr., dated Feb. 24, 2023; John, dated Feb. 23, 2023; Citigroup Letter at 3; BlackRock Letter at 10–11; Better Markets Letter I at 16; ASA Letter at 5; Vanguard Letter at 2; Invesco Letter at 2; JPMorgan Letter at 6; Ontario Teachers et al. Letter at 1–2; Budish Letter at 1; Mark Rogers Letter, dated Mar. 30, 2023; Grant Medford Letter, dated Mar. 30, 2023 ; Jared Albert Letter, dated Mar. 28, 2023; Steven Tripari Letter (‘‘Tripari Letter’’), dated Mar. 28, 2023; Peter McKornack Letter, dated Mar. 29, 2023; Verret Letter III at 26. 415See, e.g., Julio Tello, dated Feb. 24, 2023; Ryan Macarthur, dated Feb. 24, 2023; David Genco, Jr., dated Feb. 24, 2023; John, dated Feb. 23, 2023; Budish Letter at 1. 416 Julio Tello, dated Feb. 24, 2023. 417See, e.g., Ontario Teachers et al. Letter at 2; Brandes Letter at 3; Boston Partners, Calamos Advisors, Glenmede Investment, and Janus Henderson Letter. 418See, e.g., Grant Medford Letter, dated Mar. 30, 2023; Verret Letter III at 24; BlackRock Letter at 10– 11.
419See, e.g., Budish Letter at 1; Boston Partners, Calamos Advisors, Glenmede Investment, and Janus Henderson Letter. 420See, e.g., IEX Letter IV at 1; MEMX Letter at 22; Biotechnology Innovation Organization Letter at 1; Brandes Letter at 3; Letter from Allison Bishop, President, Proof Services LLC, dated Mar. 31, 2023 (‘‘Proof Letter’’) at 1; BlackRock Letter at 10–11; Verret Letter I at 1, 2 and 4; MFA Letter at 13. 421SIFMA Letter II at 39; Invesco Letter at 4; Nasdaq Letter I at 19; Better Markets Letter II at 3– 4. 422 IEX Letter IV at 1; IEX Letter I at 6 and 21; Better Markets Letter I at 16; Better Markets Letter II at 4; Ontario Teachers et al. Letter at 2; Brandes Letter at 3; Boston Partners, Calamos Advisors, Glenmede Investment, and Janus Henderson Letter (supporting Brandes’ Letter); Healthy Markets Letter I at 24; Themis Letter at 7–8; Letter from Andrew Hartnett, President and Deputy Commissioner, Iowa Insurance Division, North American Securities Administrators Association, Inc., dated Mar. 31, 2023 (‘‘NASAA Letter’’) at 1 and 9; ASA Letter at 5; Vanguard Letter at 6; JPMorgan Letter at 6; Capital Group Letter at 4; Pragma Letter at 7; Invesco Letter at 4; Verret Letter I at 8; XTX Letter at 5; Letter from Jeffrey P. Mahoney, General Counsel, Council of Institutional Investors, dated Mar. 30, 2023 (‘‘Council of Institutional Investors Letter’’) at 3; BMO Letter at 3; and BlackRock Letter at 10–11. Further, the Commission is also reducing the level of the access fee cap for NMS stocks priced under $1.00 to 0.1% of the quotation price in order to maintain the preexisting structure as well as to harmonize that cap with the adopted 10 mils cap for NMS stocks priced at $1.00 or more. The harmonization will prevent different fees on quotes above and below $1.00 that could negatively impact price formation.407 These considerations are consistent with the analysis and rationale the Commission used when it adopted the access fee caps in 2005.408 Lowering the access fee caps to these levels and maintaining the preexisting uniform structure will promote the statutory objectives of fair and efficient access to protected quotes and will help to ensure the fairness and usefulness of protected quotations 409 because the amended access fee caps will lead to transaction pricing that is better aligned with today’s market dynamics.410 Recalibrating the level of the caps will yield savings for investors and help to address distortions in the markets while maintaining the ability of the trading centers that display protected quotations to continue to provide execution services, innovate and compete because they will be able to retain the same fees (net of any rebates) for executions that are priced $1.00 or more,411 notwithstanding the reduction of the fee cap to 10 mils.412 The Commission has balanced the competing interests of reducing the cap to address the amendments to Rule 612 and market distortions associated with the fee/rebate models that
have developed under the preexisting fee caps, with the importance of preserving the viability of multiple agency market business models. The amended 10 mils access fee cap will lead to improved market quality because it will reduce distortions in the market and preserve the integrity of displayed prices, which will support sufficient price discovery, and will reduce costs for investors.413

1. Comments on Proposed Rule 610(c)
   Many comments from a broad cross
   section of market participants supported
   the need to reduce the access fee caps in preexisting Rule 610(c).414 Many individual commenters stated that the reduced access fee caps would help to reduce trading costs.415 One individual commenter stated ‘‘[a]s a retail trader, I have experienced the high costs of access fees, which can be a significant portion of my trading costs. The proposed reduction in access fee caps will help to lower my costs, which will allow me to take advantage of more trading opportunities and ultimately benefit from a more efficient market.’’ 416 Other commenters also stated that a reduction in the access fee caps would reduce trading costs for investors.417 Some commenters stated that the proposal would enhance transparency 418 and would reduce complexity.419 As discussed above, the reduced access fee caps will enhance transparency of protected quotes and reduce complexity in the market by reducing the need for complex order types that have developed to accommodate the fee/rebate models. Among the commenters that supported a reduction in the access fee caps,420 several stated that the amendments to Rule 612 to reduce tick sizes would necessitate a reduction in the access fee caps for those securities assigned a smaller tick,421 while many others stated that the preexisting access fee cap should be lowered to 10 mils per share for protected quotations in all NMS stocks priced at $1.00 or more regardless of whether there was a reduction in tick size.422 As discussed

423See, e.g., IEX Letter IV at 5; Brandes Letter at 3; Citigroup Letter at 5; BlackRock Letter at 10–11; DOJ Letter at 5; Harris Letter at 1; BMO Letter at
4. 424 IEX Letter IV at 5. See also IEX Letter III at
5. 425Brandes Letter at 3. 426See, e.g., Tripari Letter, dated Mar. 28, 2023;
Francisco Gil, dated Mar. 28, 2023; We The Investors Letter dated Mar. 30, 2023 at 7; Adam Abreu, dated Apr. 30, 2023 at 2; Michael Dudek, dated Mar. 31, 2023 at 4; Larry Douglas, dated Apr. 1, 2023 at 1 and 3; We The Investors Letter I dated Mar. 15, 20234; Betty Waters Letter, dated Mar. 31, 2023; Harris Letter at 1 & 4. 427See Cboe Letter II at 2 and 8; Angel Letter at 7. 428Cboe Letter II at 2 and 8. See also Angel Letter at 7. 429See Angel Letter at 7. 430See Regulation NMS Adopting Release, supra note 4, at 37544–45 (stating the Commission considered market participants’ views stating that agency markets must be allowed to charge access fees for their services, as well as those that stated that access fees distort quotation prices and should be banned. In adopting the 30 mil access fee cap, the Commission recognized that ‘‘agency trading centers perform valuable agency services in bringing buyers and sellers together, and that their business model historically has relied, at least in
part, on charging fees for execution of orders against
their displayed quotations.’’ The Commission concluded that ‘‘prohibiting access fees entirely would unduly harm this business model.’’). See infra sections VII.C.2.b and VII.D.2.b. 431 Id. See also infra section IV.D.1.c. 432See Regulation NMS Adopting Release, supra note 4, at 37545. 433See Regulation NMS Adopting Release, supra note 4, at 37502–37503 (stating ‘‘protecting the best displayed prices against trade-throughs would be futile if broker-dealers and trading centers were unable to access those prices fairly and efficiently.’’) See also IEX Letter V at 2 (stating proposal is designed to ‘‘prevent high fees from undermining Regulation NMS’s price protection privileges afforded to exchanges’’). 434See Regulation NMS Adopting Release, supra note 4, at 37501. 435See Regulation NMS Adopting Release, supra note 4, at 37501. 436See supra note 355 and accompanying text. 437See, e.g., Steven Tripani, dated Mar. 28, 2023; Michael Dudek, dated Mar. 31, 2023 at 4; Betty Waters Letter dated Mar. 31, 2023. One commenter suggested that the Commission should prohibit or restrict the use of CADV-tiers. We the Investors Letter, dated Mar. 30, 2023 at 7. As discussed below, the Commission is adopting Rule 610(d) as proposed which will enhance the transparency of fees and rebates, including fees that may be tiered. The Commission notes that it continues to assess volume-based exchange transaction pricing. See Securities Exchange Act Release No. 98766 (Oct. 18, 2023), 88 FR 76282 (Nov. 6, 2023) (proposing new rule 6b-1 under the Exchange Act, which would prohibit exchanges from offering volume-based transaction pricing in connection with the execution of agency or riskless principal orders in NMS stocks) (‘‘Fee Tiers Proposal’’). As discussed below, Rule 610(d) will provide certainty regarding the amount of the fee to be assessed and the rebate to paid at the time of the time of the trade, which is separate and distinct from the Commission’s consideration of other regulatory action regarding volume-based transaction pricing. See infra section IV.E. below, the Commission has decided to maintain the uniform access fee cap structure and continue to apply the caps to all protected quotes based on price. The Commission has decided that reducing the caps for all protected quotes, not just those that may be assigned the smaller $0.005 minimum pricing increment, is appropriate to address the distortions that exist in the national market system. Further, maintaining the uniform structure will help to ensure that the rule does not increase complexity in the national market system. Several commenters stated that modifications to reflect the significant evolution in market conditions since the caps were established almost two decades ago are long overdue.423 One commenter stated that the current access fee caps are ‘‘antiquated.’’ 424 Another commenter stated that the access fee caps are ‘‘outdated’’ and ‘‘counter to the interests of long term investors.’’ 425 The
Commission is reducing the access fee caps to accommodate the amendments to Rule
612. Further, retaining a uniform access
fee cap structure will benefit the market by introducing less complexity and help to address market distortions that have arisen under the current fee caps. The current market structure has experienced significant changes in trading dynamics and operates under a fee structure that is different from when Rule 610(c) was adopted and problematic for the reasons articulated throughout this release. As discussed above and in the Economic Analysis, the amendment modernizes Rule 610(c) to reflect current trading dynamics and mitigate distortions associated with the preexisting caps while preserving its original objectives. Some individual commenters recommended that the proposal be modified to go further to address distortions in the market related to the current fee and rebate models.426 A few commenters stated that the access fee caps should be eliminated entirely.427 One commenter stated that ‘‘competitive forces should inform access fees.’’ 428 Another commenter stated that the ‘‘solution is to let brokers take fees into consideration in their order routing . . . and route to the market with the best all-in costs,’’ which would obviate the need for the Commission to ‘‘get into the price control business.’’ 429 While some commenters suggested that access fees be further reduced or eliminated altogether, the Commission is not eliminating fees for access to protected quotes. Rule 610(c) establishes limits on the amount of fees that can be charged for access and when the Commission adopted Rule 610(c), the Commission recognized that agency market trading centers have historically relied, at least in part, on charging fees for access. Eliminating or prohibiting access fees entirely would unduly harm the business model of agency market trading centers by not allowing them to collect fees for the execution services they provide.430 As discussed below, the national securities exchanges are the only trading centers at this time that display protected quotations and they should be able to continue to charge for the execution services they provide.431 However, while recognizing the importance of the agency market business model to the national market system, in adopting the access fee caps the Commission also was mindful that ‘‘[a]ccess fees tend to be highest when markets use them to fund substantial rebates to liquidity providers, rather than merely to compensate for execution services’’ and artificially high access fees (i.e., those that are used primarily to fund rebates) can undermine price discovery because ‘‘the published quotations of such markets would not reliably indicate the true price that is actually available to investors or that would be realized by liquidity providers.’’ 432 Further, notwithstanding commenters’ statements to the contrary, the access fee caps continue to be necessary in order to support the objectives of fair and efficient access to protected quotations, which ‘‘is necessary to support the integrity of the price protection
requirement established by the adopted the Order Protection Rule.’’ 433 In adopting Rule 611, the Commission stated that strong intermarket price protection offers greater assurance that investors who submit market orders will receive the best readily available prices for their trades.434 Rule 611 was designed to ‘‘strengthen the protection of displayed and automatically accessible quotations in NMS stocks.’’ 435 The Commission recognized that such objectives could be undermined if ‘‘outlier’’ markets could charge high fees to market participants who would be required to pay such high fees to access a protected quotation because of Rule 611. The comments that suggest eliminating the access fee caps and allowing a consideration by brokers of all-in costs or relying solely on competition, do not address the concern that led to the adoption of the access fee caps, namely that outlier markets would take advantage of Rule 611 by imposing high fees for access.436 The access fee caps remain necessary for the reasons they were adopted. Some commenters stated that the Commission should act to prohibit rebates.437 While in many cases rebates

438See supra section IV.B.2. See also infra section IV.D.1.b. 439See infra note 590 and accompanying text. 440See infra section VII.C.2. 441See infra section IV.D.1.b and VII.D.2. 442See Harris Letter at 1 and 4. 443See Harris Letter at 4. 444National securities exchanges establish and amend their fee schedules by filing proposed fee rule changes, pursuant to section 19(b) of the Exchange Act and rule 19b–4 thereunder, for Commission review. See 15 15 U.S.C. 78f(b)(4) and (5)(requiring the rules of the exchange provide for the equitable allocation of reasonable dues, fees, and other charges among members, and issuers and other persons using its facilities and not be designed to permit unfair discrimination). 445See, e.g., Healthy Markets Letter I at 24; Vanguard Letter at 6. See also supra note 422. 446See Vanguard Letter at 6. 447Cboe Letter III at 1–2. 448See, e.g., SIFMA Letter II at 39 (stating ‘‘the Commission appropriately recognized that tick sizes and access fees are linked with each other’’); Nasdaq Letter I at 19 (‘‘support[ing] adjusting the access fee cap to accommodate new tick sizes’’); Better Markets Letter II at 3–4; MEMX Letter at 22 (‘‘access fees and tick sizes are inherently linked’’). 449Better Markets Letter II at 3–4. 450See, e.g., Invesco Letter at 4; NASAA Letter at 9; JPMorgan Letter at 6; Better Markets Letter II at 4; Healthy Markets Letter I at 22; Pragma Letter at 7; Budish Letter at 6; AIMA Letter at 4. 451Pragma Letter at 7. 452Budish Letter at 6. 453See, e.g., MEMX Letter at 22; SIFMA Letter II at 39; Better Markets Letter II at 3–4; Nasdaq Letter I at 19. See also infra section VII.D.2. 454See infra section VII.D.2.a. 455See infra section VII.D.2.a. 456See id. 457See id. 458See id. are funded by the access fees that are collected, Rule 610(c) does not apply to rebates.438 The Commission is adopting amendments to Rule 610(c) to reduce the access fee caps for the reasons discussed herein, but is not expanding its application to apply to rebates or to eliminate them.439 The adopted amendments to Rule 610(c) maintain fidelity to the original objectives of the rule, but recalibrate the fee cap amounts to reflect current market structure. As a practical matter, however, the reduced access fee caps in amended Rule 610(c) will likely reduce the rebates paid 440 and, as a result, the amended access fee caps will reduce the distortions created by the existing fee structures that use access fees as a means to fund the payment of rebates in the market.441 One commenter stated that the Commission should require the exchanges to ‘‘revert to traditional fees imposed on buyers or sellers or both without regard to the maker-taker status.’’ 442 Rule 610(c) does not require any particular fee structure, like a flat fee structure suggested by a commenter.443 Instead, the access fee caps set an upper limit on the amount of fees that can be charged for access to protected quotations. Within this construct, trading centers can continue
to develop fee structures that are consistent with Rule 610 as well as any other regulatory requirements that may be relevant to a particular trading center.444 a. Access Fees and Minimum Pricing Increments Several commenters stated the Commission should lower the access fee caps regardless of whether any changes are made to the minimum pricing increments and stated that such changes are warranted even if the Commission elects not to proceed with the proposed tick changes.445 One commenter stated ‘‘the current harms associated with the $0.003 access fee cap and maker-taker pricing models exist at the current tick sizes. Accordingly, the Commission should consider reducing the access fee cap even if it ultimately decides not to proceed with the proposed tick size changes.’’ 446 Another commenter, however, ‘‘strongly disagreeing’’ with commenters’ suggestion that regulatory reform of exchange fees could proceed independently, stated that ‘‘[c]alls for regulatory mandated reductions in exchange access fee caps fail to recognize that exchange access fee caps were adopted and justified to facilitate effective intermarket linkages.’’ 447 Other commenters stated that the levels of the access fee caps and the minimum pricing increments are connected.448 One commenter stated ‘‘[a] reduction in the minimum tick size without reducing access fees could permit fees to become a higher percentage of the minimum pricing increment, which would almost certainly undermine price transparency.’’ 449 Commenters stated that the access fee caps should be reduced to help ensure that access fees do not become an outsized portion of displayed quotes in light of proposed changes to the minimum pricing increments.450 One commenter stated that it was ‘‘recommend[ing] keeping fees strictly less than 1⁄2 of the tick size’’ in order to prevent ‘‘price instability and quote flickering’’ and stated ‘‘[i]f fees reach 1⁄2 the tick size, it means that the same effective price point can be achieved multiple ways on an all-in basis with different nominal prices (e.g., an offer at 10.000 with a $0.0005 rebate, or a bid of 10.001 with a $0.0005 rebate).’’ 451 Another commenter stated ‘‘if the access fee cap were to exceed half of the tick size, the paper trail can be not only confusing but can literally misrank trades.’’ 452 As recognized by several commenters, access fees and tick sizes are related in certain instances.453 Specifically, an access fee that is too high when compared to the tick size can create pricing distortions.454 Therefore, because the Commission is reducing the minimum pricing increments for certain NMS stocks as set forth in Rule 612, the Commission is also reducing the Rule 610(c) access fee caps to prevent introducing pricing distortions that can occur if an access fee is greater than one-half of the tick. Maintaining an access fee cap that is less than one-half of the tick size will preserve coherence 455 and result in lower transaction costs for investors.456
Further, lowering the access fee cap to 10 mils for those NMS stocks assigned a lower tick will address the distortionary effect on price transparency that would result absent adjustment to the access fee cap.457 To illustrate, if the access fee cap remained at $0.003, which would fund rebates at a similar level, and the tick size was adjusted to $0.005, the effect on the price of a stock could be as follows. An executed trade could be displayed at a price of $10.005 followed by another executed trade at a price of $10.010. Many investors would interpret this as a sign that a stock was increasing in value. However, with an access fee of $0.003, the net price of the first order if it represents a market order to buy would be $10.008 (the buyer pays $10.005 and pays $0.003 in fees), whereas the net price of the second order if it is a market order to sell would be $10.007 (the seller receives $10.010 and pays $0.003 in fees). In this example, the price has fallen, not risen. Lowering the access fee cap to 10 mils will mitigate this problem.458 The Commission also agrees that the access fee caps should be lowered for all NMS stocks regardless of whether a stock is assigned the lower pricing increment of $0.005 or retains a $0.01 minimum pricing increment to address market distortions attributable to the fee structures that have developed under the access fee caps and align the fee caps with current market dynamics. The Commission is reducing the access fee caps for all NMS stocks and maintaining the structure that was originally adopted, i.e., assigning an access fee cap based on the price of the protected quotation. And, as discussed above, maintaining a uniform access fee cap structure will help to ensure that the requirements under Rule 610(c) do not increase the fee structure complexity. Some commenters were generally supportive of an access fee cap

459See, e.g., AIMA Letter at 4; Cambridge Letter at 6; ICI Letter I at 16; STA Letter at 8. 460See, e.g., Pragma Letter at 7; MFA Letter at 13; Schwab Letter II at 6 and 36; SIFMA Letter II at 45; MEMX Letter at 22; Jefferies Letter at 2; NYSE Letter I at 7; Nasdaq Letter I at 29; NYSE, Schwab, and Citadel Letter at 1–2. 461See, e.g., FIA PTG Letter II at 3; Hudson River Letter at 4; MMI Letter at 7; Robinhood Letter at 46, 56–59. See also MEMX at 22. 462See, e.g., JPMorgan Letter at 6; MFA Letter at 13. 463See, e.g., Fidelity Letter at 14–15; Cambridge Letter at 6; NYSE, Schwab, and Citadel Letter at 2; MEMX Letter at 23; Jefferies Letter at 2; Schwab Letter II at 6. 464See Nasdaq Letters I and II; NYSE Letter I; and Cboe Letters I–IV. 465Nasdaq Letter I at 2 and 19. 466Nasdaq Letter I at 2, 19 and 29. See also NYSE Letter I at 7. 467Nasdaq Letter I at 2. 468Nasdaq Letter I at 20. 469Better Markets Letter I at 16. See also e.g., Better Markets Letter II at 4; Brandes Letter at 3; BlackRock Letter at 11; JPMorgan Letter at 6; Invesco Letter at 4. 470See, e.g., JPMorgan Letter at 6; Brandes Letter at 3. 471Brandes Letter at 3. 472Capital Group Letter at 4. 473See, e.g., IEX Letter VI at 2. 474 IEX Letter VI at 2. 475See, e.g., T. Rowe Price Letter at 4; BlackRock Letter at 10–11; Citigroup Letter at 5–6; Letter from Phil Mackintosh, Nasdaq, Inc., dated May 7, 2024, at 2 (‘‘Nasdaq Letter V’’). 476Morgan Stanley Letter at 3. 477Morgan Stanley Letter at 3–4. 478See Cboe Letter IV at 2. 479See Cboe Letter IV at 2. reduction because of the changes to the minimum pricing increment, but offered no or few specifics as to the amount or percentage of the reduction.459 Other commenters urged the Commission to reduce the access fee caps in a manner that is proportionate to any reduction in the tick (e.g., for a $0.005 tick, the access fee cap should be 15 mils).460 Some commenters stated that the access fee caps should be 30% of the minimum pricing increment in order to remain consistent with the percentage level under the preexisting rule.461 These commenters recommended maintaining the current 30% ratio between tick size and access fee cap because they were primarily concerned that the proposal would result in access fees that were 50% of the tick (an increase in fee to tick ratio) for the smallest proposed tick size (i.e., the proposed $0.001 tick would have been assigned a 5 mils access fee cap). Other commenters expressed concern regarding application of a two-tiered access fee cap structure to a four-tiered reduction in minimum pricing increments.462 These commenters’ concerns regarding both the increase in fee to tick ratio and asymmetrical structure of the proposal, however, have been obviated because the Commission is neither adopting the $0.001 tick, nor the corresponding 5 mils cap. Other commenters stated that the access fee caps should be reduced only for NMS stocks that are assigned a smaller minimum pricing increment and only in proportion to
the amount of a stated corresponding decrease in the tick size, i.e., NMS stocks that were assigned a smaller $0.005 tick size would be subject to a 15 mils access fee cap.463 Similarly, several exchange groups commented on the proposal and offered alternative approaches to modify Rule 610(c) to reflect the change in minimum pricing increments.464 One exchange group commenter supported the need to adjust the access fee caps to accommodate the proposed new tick sizes, but stated its view that the proposal went ‘‘far beyond what is needed’’ to achieve that purpose ‘‘to the detriment of market quality and the NBBO’’ because reducing the caps would implicitly reduce rebates, which would impede exchanges’ ability to attract liquidity and encourage tighter spreads.465 As an alternative to the proposal, the commenter recommended the Commission adopt a fee cap of 15 mils for NMS stocks assigned to a $0.005 minimum pricing increment and retain the preexisting 30 mils access fee cap for NMS stocks that retain the $0.01 minimum pricing increment.466 According to this commenter, this alternative ‘‘would cut access fees by half for securities in the $0.005 tick bucket, while preserving room for exchanges to continue [to] offer rebates that are needed to bolster market quality and the NBBO.’’ 467 This commenter further stated that although the Commission intends the proposal to help the exchanges compete for retail order flow by reducing the cost for broker-dealers to access liquidity on the exchange, compressing the access fee caps would make it more expensive to provide liquidity to the exchanges and thus any benefit would be undermined.468 Several commenters stated that there should be a uniform fee cap to ‘‘avoid any additional market complexity.’’ 469 Some commenters stated that the proposed tiered access fee caps and the proposed variable minimum pricing increments would add unnecessary complexity.470 One commenter stated that it ‘‘strongly favor[ed] a single, consistent standard, rather than multiple caps tied to different ticks, which would create unnecessary complexity.’’ 471 Another commenter stated that applying a uniform cap across all NMS stocks would help to address market distortions such as routing conflicts arising from the maker￾taker fee model.472 Another commenter stated that continuing to apply a uniform cap will more effectively achieve the objectives of Rule 610 because absent such adjustment, ‘‘the ability of exchanges to abuse their status as protected markets will be no less for stocks that are assigned a higher tick increment.’’ 473 One commenter stated that setting different fee caps based on tick size would ‘‘allow exchanges to impose a ‘penalty fee’ for participants looking to access quotes in stocks that are less actively traded’’ and further stated that ‘‘there is no justification in logic or regulatory purpose to make that distinction.’’ 474 However, other commenters disfavored a ‘‘one-size-fits￾all’’ model.475 One commenter
suggested the Commission consider a ‘‘dynamic tick size approach with the access fee cap proportionally tied to both smaller and larger tick sizes’’ 476 and recommended the access fee caps be a certain percentage of the minimum pricing increment, but did not propose a particular percentage that should be adopted.477 Other commenters disagreed that the level of the access fee cap should be tied to the pricing increment assigned. One exchange commenter stated that the ‘‘original justification for access fee caps had nothing to do with tick sizes’’ and instead ‘‘centered around ensuring that transaction fees did not unduly distort the price of a quote that the Commission was protecting by rule [611].’’ 478 This commenter also stated that ‘‘[m]odifications to access fee caps should only be discussed in the context under which they were conceived’’ which was ‘‘to ensure that market centers displaying the best price did not impose access fees that compromised the value of the better price.’’ 479 The Commission agrees that one of the purposes of the access fee cap was, and remains, to help to ensure that transaction fees do not unduly distort the price of protected quotations. However, the Commission does not agree that goal is best achieved by adopting certain commenters’ recommendation to reduce the access fee caps proportionally (i.e., to 15 mils) and only for those NMS stocks that are assigned a smaller minimum pricing increment. A proportional reduction for a limited universe of NMS stocks would allow higher access fees and rebates along with related market distortions to continue for the NMS stocks that retain the $0.01 increment and would perpetuate unwarranted complexity (e.g., complex orders types, market

480See infra section VII.D.2.
481See infra section VII.D.2.d.
482 IEX Letter V at 7.
483See infra section VII.F.2.a.
484See supra note 405 and accompanying text (discussing trading efficiencies due to technology changes and reduced costs), infra note 598, and infra section IV.D.1.d. 485See infra section IV.D.1.d. 486See, e.g., IEX Letter IV at 2–4; Better Markets Letter I at 16. 487Better Markets Letter I at 16. See also IEX Letter VI at 7; NASAA at 9. 488 IEX Letter VI at 7. 489See Proposing Release, supra note 11, at 80348 (stating ‘‘the access fee cap should not be greater than 1⁄2 of the tick size in order to preserve coherence between net and nominal price rankings of trading venues. This would not be possible with an access fee cap of $0.001 and a lowest possible proposed tick size of the same amount, as would be the case for the smallest tick size tier from the proposal.’’). 490See Proposing Release, supra note 11, at 80267 & 80289–90 (stating ‘‘[a] reduction in the minimum pricing increment without reducing the access fee caps could permit fees to become a higher percentage of the minimum pricing increment, which could potentially undermine price transparency and exacerbate the other concerns with maker-taker fees.’’). 491See, e.g., Schwab Letter II at 6 and 36; SIFMA Letter II at 45; Citadel Letter I at 23; Hudson River Letter at 4; AIMA Letter at 4; Robinhood Letter at 57–58. 492Hudson River Letter at 4. 493See supra section III.C and supra note 346. 494This approach is consistent with some commenters’ recommendations. See, e.g., Better Markets Letter I at 16 (stating ‘‘the Commission should just dispense with the $0.001 tick size altogether’’ because doing so would eliminate ‘‘the need for a separate [5 mil] access fee cap.’’ This commenter stated that proceeding in this manner would maintain a single uniform cap for all stocks and avoid introducing additional complexity). 495See supra note 346. 496Several commenters expressed support for expanding the application of the access fee caps in certain ways. See, e.g., infra notes 614–616. Expanding or altering the structure of the cap would add complexity to the national market system. As discussed above, in response to commenters, amended Rule 610(c) introduces fewer variables and less complexity into the national market system. Expanding the application of Rule 610(c) and/or modifying its structure as these commenters suggest would be inconsistent with this approach. 497See Regulation NMS Adopting Release, supra note 4, at 37595. 498See IEX Letter IV at 18–19, 22; Themis Letter at 8; Better Markets Letter I at 16; BMO Letter at 3–4; ASA Letter at 5. fragmentation, complex fee and rebate schedules and frequent changes to complex order routing strategies to adjust to fee changes) to the current market structure.480 Applying a uniform 10 mil access fee cap to access protected quotations in all NMS stocks priced $1.00 or greater will avoid injecting complexity 481 in the market and will continue to guard against ‘‘outlier’’ markets undermining the objectives of Rule 611. While the Commission agrees with
commenters that tick size and access fees are relational in so far as the access fee cannot be more than half of the minimum pricing increment (for the reasons discussed above), maintaining the current proportionality of the access fee to tick could perpetuate distortions in the market. As stated by one commenter, ‘‘when the cap was set in 2005, neither the Commission nor commenters ever suggested that the cap should be exactly equal to a fixed proportion of the tick size.’’ 482 Further, lowering the access fee cap for only those NMS stocks that are assigned a lower minimum pricing increment (i.e., those NMS stocks that are constrained by the $0.01 minimum pricing increment) and maintaining the preexisting (30 mils) fee cap for all other NMS stocks priced $1.00 or greater could increase the probability that some stocks will oscillate from one tick size to another rather than settling on an appropriate tick. This oscillation creates additional cost for market participants, introduces complexity in the markets and creates operational risk.483 In addition, continuing to apply a 30 mil access fee cap to those NMS stocks that continue to be assigned a $0.01 pricing increment would ignore the efficiencies in trading 484 that have been realized in the intervening 19 years since the caps were adopted and would not address the distortive effects of access fee structures that assess access fees at or near the current cap in order to maximize the amount of the rebate that can be offered.485 In addition, as discussed below, and supported by some commenters, fees and rebates which are currently benchmarked against the 30 mil cap have a negative impact on price transparency and routing practices.486 According to one commenter, ‘‘there is evidence that exchanges that pay the highest rebates often provide worse execution quality.’’ 487 Another commenter provided data it said demonstrates that ‘‘poor execution quality is directly linked to high access fees.’’ 488 Lowering the cap to 10 mils for all NMS stocks, both those that are assigned a $0.005 tick and those that retain the $0.01 tick, will benefit market participants, including investors, by lessening the incentives to route to a market in order to receive a rebate. The Commission proposed a two-level access fee cap structure for access to protected quotes in NMS stocks priced at $1.00 or more to accommodate the proposed variable minimum pricing increment structure and specifically to prevent the access fee caps from creating pricing distortions with the smallest proposed minimum pricing increment (i.e., 5 mils access fee cap for NMS stocks that would have been assigned a $0.001 pricing increment and 10 mils cap for NMS stocks that would have been assigned a pricing increment greater than $0.001).489 Specifically, the proposed 5 mil access fee cap was necessary to accommodate the proposed lowest $0.001 minimum pricing increment because imposing the proposed 10 mil access fee cap on the $0.001 minimum pricing
increment would have created distortions in quoting and negatively impact pricing transparency.490 Several commenters raised concerns about the proposed 5 mil access fee cap and its ratio as compared to the minimum pricing increment.491 One commenter stated that ‘‘[a]t 50% of the minimum pricing increment, a round trip buy and sell trade could result in access fees equal to the spread’’ and expressing concern that ‘‘at 50% of the spread, rebates of greater than half of the minimum pricing increment could lead to market distortion.’’ 492 Because the amendment to Rule 612 does not include the $0.001 minimum pricing increment, the Commission is not adopting the 5 mils access fee cap. Specifically, with the elimination of the proposed $0.001 minimum pricing increment,493 the proposed 5 mil access fee cap is unnecessary.494 Accordingly, the Commission is adopting the proposed 10 mils access fee cap as proposed.495 The Commission is removing the proposed tiered approach to the access fee caps and instead maintaining the preexisting single, uniform access fee cap structure for protected quotes priced $1.00 or more.496 The amendment will introduce fewer variables, less complexity and lower cost and operational risk as compared to the proposed two-level access fee cap structure.497 More specifically, as is the case today, there will be one access fee cap for NMS stocks priced at $1.00 or more and a separate access fee cap that applies to NMS stocks priced below $1.00. b. Impact on Liquidity and the NBBO Some commenters stated that lowering the access fee cap to 10 mils would not impinge on the exchanges’ ability to offer incentives and attract liquidity and instead stated that reducing the caps would likely draw liquidity back to the exchanges.498 According to one commenter, ‘‘ATSs and other off-exchange venues generally charge rates much lower than the access

499 IEX Letter IV at 18.
500 IEX Letter IV at 18–19.
501Healthy Markets Letter I at 21.
502 IEX Letter IV at 6. See also ASA Letter at 5. 503 IEX Letter IV at 6. 504Better Markets Letter I at 16. See also IEX Letter VI at 1. 505See IEX Letter IV at 10–11, 16; Themis Letter at 7. 506Themis Letter at 7. See also IEX Letter IV at 16; Verret Letter III at 11, 13–14. 507BMO Letter at 4. See also Tripari Letter; Verret Letter III at 13; Proposing Release, supra note 11, at 304. 508See, e.g., BMO Letter at 4; Brandes Letter at 3; Healthy Markets Letter I at 21; Themis Letter at 7; Council of Institutional Investors Letter at 3. See also infra section VII.D.2 (discussing market distortions). 509Healthy Markets Letter I at 21. 510BlackRock Letter at 10–11. 511 Id. at 10. 512 IEX Letter IV at 5. 513 Id. 514 IEX Letter IV at 5. 515 IEX Letter IV at 5. 516See, e.g., World Federation of Exchanges Letter at 4; Virtu Letter II at 8, 16–17; Citadel Letter I at 22. 517See, e.g., State Street Letter at 4, Interactive Brokers Letter at 5, Nasdaq Letter I at 23, Nasdaq Letter II at 5–6, Letter from Brett Kitt, Associate Vice President, Principal Associate General Counsel, Nasdaq, Inc., dated Feb. 14, 2024 (‘‘Nasdaq Letter III’’) at 5, Cboe Letter III at 8. 518Nasdaq Letter III at 5. 519See, e.g., Cboe Letter II at 8–9; Cboe Letter III at 8; Nasdaq Letter I at 2; Nasdaq Letter I at 22. 520See, e.g., CCMR Letter at 27, Interactive Brokers Letter at 5. 521Fidelity Letter at 14. 522State Street Letter at 4. See also CCMR Letter at 27; Interactive Brokers Letter at 5; Nasdaq Letter I at 23; Nasdaq Letter II at 5–6; Nasdaq Letter III at 5. 523Fidelity Letter at 14. See also e.g., Nasdaq Letter II at 6; State Street Letter at 4. fees imposed by most exchanges. Because their cost of access is so much higher than on other venues, exchanges become the venue of ‘last resort.’ ’’ 499 This commenter further stated that ‘‘modernizing the access fee cap and bringing exchange access fees in line with off-exchange trading venues will reduce the need for exchange avoidance and naturally result in a better experience for liquidity providers, one that will not need to be ‘offset’ by rebate payments.’’ 500 Another commenter stated that ‘‘[b]rokers’ avoidance of these fees is a significant contributor for brokers often choosing to internalize or first route to ATSs or OTC market makers, rather than to exchanges with their customers’ orders.’’ 501 Another commenter stated that ‘‘the 30-mil cap is among the factors driving the shift away from displayed trading.’’ 502 One commenter stated ‘‘reduced displayed trading is a problem because it impedes the fair and transparent distribution of pricing and transaction information that Congress directed the Commission to protect . . . [and] the 30-mil cap is among the factors driving the shift away from displayed trading.’’ 503 And another commenter stated that lower access fees will impose lower costs on investors, ‘‘removing a disincentive for trading on exchanges.’’ 504 Other commenters stated that lowering the access fee caps
would address other concerns regarding market distortions associated with the payment of high rebates.505 One commenter stated that ‘‘[r]ebates distort supply and demand and harm the price discovery process.’’ 506 One commenter stated that reducing the cap to 10 mils would ‘‘provide ample room for exchanges to create incentives, charge premium or discounted prices, and earn a profit, all while lowering the distortive effects they have on the equity market.’’ 507 In addition, some commenters stated that reducing the cap would alleviate the potentially distortive effects of the maker-taker pricing model.508 According to one commenter, ‘‘the current fee levels foster and enable significant market distortions in today’s marketplace’’ and ‘‘the fees charged by exchanges often serve as powerful disincentives for market participants to access that liquidity.’’ 509 Another commenter ‘‘recognize[d] that access fees and the rebates that they fund serve an important function in incentivizing liquidity provision for thinly-traded securities and compensating market makers for adverse selection,’’ but also stated that ‘‘[p]rudent regulation must appropriately . . . balance the beneficial effect of access fees on liquidity against the potential for market distortions’’ associated with maintaining the 30 mil cap.510 According to this commenter, ‘‘lowering fees would mitigate the detrimental effect of access fees on order routing, price transparency, and market quality in many securities.’’ 511 Further, another commenter stated that when the Commission adopted the preexisting caps, ‘‘its focus was on limiting the distortive impact of disproportionate access fees, not on facilitating the ability of markets to pass them through as rebates.’’ According to this commenter, the only way in which the Commission viewed access fees and rebates as related was that ‘‘a fee limit was needed to avoid distortive pricing of the type that occurs when access fees are primarily passed through to other participants in the form of rebates.’’ 512 This commenter further stated that the ‘‘bulk of executions against displayed quotes pay the maximum fee, with the overwhelming share of that revenue being passed through as rebates.’’ 513 Finally, one commenter stated ‘‘the pricing distortions the Commission was concerned about when it adopted Regulation NMS have become acute today due to changed market conditions’’ resulting in brokers being incentivized to ‘‘route orders away from best-displayed exchange quotes in order to avoid the high fees—precisely the result the Commission sought to avoid when it first adopted the cap.’’ 514 This commenter also stated that ‘‘the introduction of ‘inverted’ venues that pay rebates to access rather than provide displayed orders, and the use of highly￾skewed rebate tiers, has created even more price distortion and misaligned incentives.’’ 515 Other commenters opposed any changes to the existing access fee caps because they stated that reducing the caps
would limit the exchanges’ ability to offer rebates to incentivize liquidity providers, as access fees typically fund such rebates and this could negatively impact liquidity on exchange markets.516 Some commenters stated that the reduction in the access fee caps, which would reduce rebates, would result in wider spreads, and less quoted size which would increase trading costs.517 One commenter stated that the ‘‘cost of widening spreads that would result from removing fees and rebates would cost retail investors . . . as much as $687 million per year.’’ 518 Some commenters stated that the reduction of rebates would impact spreads, which (according to those commenters) suggests that rebates have an impact on displayed pricing.519 Other commenters stated that the reduction in rebates would have a negative impact on market liquidity.520 One commenter stated that the current access fee cap levels ‘‘help[ ] improve liquidity and provide narrower quotes than otherwise would be available in the marketplace.’’ 521 Similarly, another commenter stated support for further ‘‘examining changes to the access fee cap,’’ but cautioned ‘‘that wholesale reductions, particularly when combined with other changes . . . will disincentivize liquidity provision, reduce market maker support, widen bid-ask spreads, and increase volatility in thinly-traded securities.’’ 522 Some commenters stated that certain securities may ‘‘require rebates larger than 10 mils to incentivize tight quotes.’’ 523 However, another commenter stated that claims of ‘‘hidden costs to investors, in the form of worse NBBO prices, wider spreads, higher costs for retail investors, in the

524See IEX Letter IV at 22.
525See Cboe Letter II at 8–9; Cboe Letter III at 8; Nasdaq Letter I at 2; Nasdaq Letter I at 22. See also e.g., Virtu Letter II at 8; Citadel Letter I at 22. 526See Cboe Letter II at 8. See also Cboe Letter IV at 2; Nasdaq Letter I at 22–29; Nasdaq Letter IV at 8. 527Cboe Letter III at 4. See also Cboe Letter IV at 3; Nasdaq Letter I at 20. 528Cboe Letter IV at 3. 529Nasdaq Letter II at 7. See also Nasdaq Letter I at 19; Nasdaq Letter III at 5–6. But see IEX Letter IV at 10–11 (stating ‘‘[t]here is ample evidence that maintaining the access fee cap at its current level has led to distortions the Commission sought to avoid.’’). 530Nasdaq Letter I at 20; Nasdaq Letter II at 6– 7. 531Nasdaq Letter I at 2, 22. 532Nasdaq Letter I at 22. 533Nasdaq Letter I at 22 534Nasdaq Letter I at 22. 535Nasdaq Letter IV at 8. 536Nasdaq Letter I at 21. 537Cboe Letter III at 5–6. 538Nasdaq Letter VI at 1. 539Nasdaq Letter VI at 2. 540See, e.g., IEX Letter IV at 3; Letter from J.W. Verret, Associate Professor, George Mason University, dated Aug. 27, 2024 (‘‘Verret Letter IV’’). 541 Verret Letter IV at 2. 542See supra section IV.A. See also sections I and I.B. 543 15 U.S.C. 78k–1(c)(1)(B). Section 23 of the Exchange Act also authorizes the Commission ‘‘to make such rules and regulations as may be necessary or appropriate to implement the provisions’’ of the Act. 15 U.S.C. 78w(a)(1). 544See supra notes 2–3 and accompanying text. 545Nasdaq Letter VI at 1 and Nasdaq Letter I at 2. 546Nasdaq Letter I at 2. form of worse NBBO prices, wider spreads, higher costs for retail investors and less liquidity for thinly-traded securities’’ did not have a factual basis and did not account for the ‘‘tangible cost reductions that would arise from lower access fees.’’ 524 Certain exchanges also opposed any changes to the access fee caps, stating that reducing the access fee caps would impede their ability to offer competitive rebates and meaningful price differentiation, hindering their ability to attract liquidity and compete with off￾exchange trading venues for order flow.525 One commenter stated that ‘‘[c]ompressing the caps further . . . [would] introduce additional concerns with implications for competition and market quality.’’ 526 In addition, this commenter stated that rebates, which are funded by access fees, are ‘‘innovative and critically important tools that enhance market depth, promote tighter bid-ask spreads, and encourage order flow to be routed to lit exchanges’’ and any diminution in the access fee caps would ‘‘in fact disrupt current business practices and competitive dynamics.’’ 527 This commenter also stated that reducing the access fee caps could ‘‘have significant revenue consequences,’’ 528 but provided no specifics. Another commenter stated that reducing rebates ‘‘discourages on-exchange market making,’’ which could deteriorate the NBBO as it ‘‘would be drawn from a smaller and less representative pool of displayed liquidity.’’ 529 According to this commenter,
although the proposal might make it cheaper for broker-dealers to access liquidity, costs for liquidity providers and market makers would increase, and spreads would widen, which in turn would result in higher ‘‘all-in’’ costs for investors.530 Further, one commenter stated that the proposal ‘‘risks weakening the NBBO by restricting exchanges’ ability to offer meaningful rebates to encourage more liquidity and tighter spreads that underpin the NBBO’’ 531 and stated that the NBBO is ‘‘comprised exclusively of trading interest displayed on public exchanges. . . [and] limit[ing] exchanges’ ability to gather liquidity . . . would weaken the public reference price.’’ 532 According to this commenter, ‘‘rebates are essential to market quality as they encourage market participants to act as market makers and provide two￾sided quotes that make the equity markets function soundly.’’ 533 This commenter further stated that rebates provide ‘‘integral value to the operation of well-functioning, fair, and orderly equity markets’’ because they serve to cushion market makers against the risks of adverse selection and price volatility, thereby incenting them to continue to make markets, even in thinly-traded or volatile securities, and to do so with tighter spreads than they would otherwise.’’ 534 According to the same commenter, a reduction in rebates would lead to greater market complexities because there would be more ‘‘speedbump or ‘quote protection’ markets’’ and a ‘‘[g]reater focus on segmentation.’’ 535 This commenter also stated that the proposal would ‘‘potentially undermine the competitive positions of the exchanges and the market makers that quote on them by seeking to limit their ability to charge fees and collect rebates for their respective services.’’ 536 Another commenter stated that ‘‘it is entirely inappropriate to experiment with exchange pricing models for fear of broker failings’’ and ‘‘exchange fees are extremely transparent . . . and receive a significant amount of SEC review.’’ 537 Finally, one commenter ‘‘question[ed] the Commission’s authority to reduce the fee cap beyond what is needed to accommodate the new, smaller tick sizes, thereby with the implicit aim of limiting the ability of exchanges to provide meaningful rebates to market participants.’’ 538 According to this commenter, the Commission ‘‘lacks the authority to enact radical changes to exchange access fees without explicit congressional mandate’’ and ‘‘the Commission’s charge to establish a national market system evidences no express intent for the Commission to impose price controls upon exchanges as a means of promoting competition.’’ 539 Other commenters stated that the Commission had clear statutory authority to adopt Rule 610 and to make subsequent adjustments to the access fee caps.540 One commenter stated that ‘‘a plethora of items in the 34 Act, the SEC’s prior 50 years of regulation of the National Market System, and related constitutional precedent regarding the
private non-delegation doctrine specific to self-regulatory organizations (SROs)— not only give the SEC sufficient delegation of authority to adopt the pending NMS proposal, they compel the SEC to exercise its authority that oversees a dynamically changing national market system.’’ 541 As discussed above,542 section 11A(c)(1)(B) of the Exchange Act authorizes the Commission to adopt rules assuring the fairness and usefulness of quotation information.543 Further, Congress explicitly granted the Commission ‘‘broad authority to oversee the implementation, operation, and regulation of the national market system’’ and the ‘‘clear responsibility to assure that the system develops and operates in accordance with Congressionally determined goals and objectives’’ which requires balancing different, and often competing, interests and components of the complex national market system.544 The access fee caps in preexisting Rule 610(c) were adopted through rulemaking pursuant to the Exchange Act, including section 11A, and recalibration of the levels of the access fee caps falls squarely within the Commission’s statutory authority. The commenter that questioned the Commission’s authority to reduce the level of the access caps to 10 mils acknowledged the Commission’s authority to reduce the access fee caps ‘‘to accommodate the new, smaller tick sizes’’ 545 and in an earlier comment letter stated it ‘‘supports adjusting the access fee cap to accommodate new tick sizes.’’ 546 The Commission’s authority set forth in the Exchange Act is not circumscribed in the manner suggested

547See Regulation NMS Adopting Release, supra note 4, at 37498. As was the case when the Commission adopted the preexisting fee caps, the rulemaking process has required the Commission to ‘‘grapple with many difficult and contentious issues that have lingered unresolved for many years’’ and after examining these issues and assessing the views of commenters, particularly those that disagree with the proposal, ‘‘decisions must be made and contentious issues must be resolved so that the markets can move forward with certainty.’’ Id. While the Commission always seeks to achieve a consensus, ‘‘consensus can mean indefinite gridlock that ultimately could damage the competitiveness of the U.S. equity markets [ ]. [T]he time has come to make the difficult decisions necessary to modernize and strengthen the national market system.’’ Id. 548See, e.g., Cboe Letter III at 6–7; World Federation of Exchanges Letter at 4; Virtu Letter II at 8, 16–17; Citadel Letter I at 22. 549See Regulation NMS Adopting Release, supra note 4, at 37503. 550See id. at 37596. 551 Id. 552See Regulation NMS Adopting Release, supra note 4, at 37545. 553See Regulation NMS Adopting Release, supra note 4, at 37545. See also IEX Letter V at 3 (stating ‘‘there is an obvious and direct connection between high access fees and the extent to which displayed prices deviate from the true prices at which participants are prepared to trade.’’). 554See Regulation NMS Adopting Release, supra note 4, at 37502. 555See infra section VII.C.2 and section VII.B.3 (stating most exchanges charge the maximum fee (in the range of 30 mils) and provide the maximum rebate (in the vicinity of 30 mils) and stating that the primary reason that access fees remain near 30 mils on most exchanges is to fund rebates) and infra
section VII.C.2.c, table 4.
556See infra section VII.B.3.
557Regulation NMS Adopting Release, supra note 4, at 37502. See also IEX Letter IV at 4 and 15 (stating ‘‘[t]he purpose [for capping access fees] is not, and has never been, to allow exchanges to maintain rebate payments at current high levels.’’). 558Regulation NMS Adopting Release, supra note 4, at 37545 (stating that establishing the $0.003 cap to ‘‘limit the outlier business model [and] plac[ing] all markets on a level playing field in terms of the fees they can charge and the rebates they can pass on to liquidity providers. Some markets might choose to charge lower fees, thereby increasing their ranking in the preferences of order routers. Others might charge the full $ 0.003 and rebate a substantial proportion to liquidity providers. Competition will determine which strategy is most successful.’’). See also Proposing Release, supra note 11 at 80348 (stating ‘‘The Commission recognizes that an access fee cap of 10 mils for stocks . . . would provide exchanges with enough pricing freedom to continue to offer economically meaningful rebate-tiering.’’). One commenter stated that ‘‘diminished reliance on the maker-taker economics would encourage a variety of alternative market models for providing liquidity,’’ which in this commenter’s view would be consistent with the outcome the Commission anticipated in 2005, but which has not been realized. Decimus 2016 Letter at 11. 559Regulation NMS Adopting Release, supra note 4, at 37545. 560 Id. See also Better Markets Letter II at 3 (lowering access fees would ‘‘ensure that the fees charged to access a protected quotation do not distort the true price that is available to investors.’’). 561See Proposing Release, supra note 11, at 80292 n.317 and accompanying text and 80290 n.302. See also infra section VII.A. 562See infra section VII.B. by this commenter. Congress granted the Commission broad authority to oversee the national market system and ensure that it is meeting the investment needs of the public. The reductions in the access fee caps adopted herein are designed to improve market quality for market participants accessing protected quotations in all NMS Stocks, not just those that will be assigned a new minimum pricing increment. As discussed throughout, the adjusted level of the caps also will allow trading centers to retain their net capture for transactions of protected quotations priced $1.00 or more and therefore trading centers who wish to use rebates to attract liquidity may continue to do so. Accordingly, the Commission has considered and balanced policy objectives in this complex area and reached an appropriate policy decision.547 Although some commenters stated that rebates are essential to attract liquidity on exchanges,548 the access fee caps were not established to support trading centers’ ability to offer rebates or to ensure a particular level of rebate payment; they were developed as a means to help ensure fair, efficient, and ready access to protected quotes, to preserve the
integrity of displayed prices and to ensure that the objectives of Rule 611 would not be undermined by trading centers who might seek to charge exorbitant fees to those now required to access their protected quotations.549 The Commission disagrees that rebates are essential to attract liquidity on national securities exchanges or the only means of attracting liquidity.550 The Commission stated in 2005 that markets have ‘‘significant incentives to be near the top in order-routing priority’’ 551 and displaying the best protected quotation will attract liquidity to a market. The adopted amendments will continue to allow for trading centers to develop different fee models while also preserving the objectives of Rule 610(c). Further, market participants that post non-marketable orders are able to price their orders to accommodate the risk of adverse selection and rebates are not necessary for compensating this risk. Reducing the access fee caps will help to alleviate the distortive effects of the preexisting level of access fees and the rebates they fund. The access fee caps were designed to protect limit orders and to assure that orders could be routed to those markets that were displaying the best-priced quotations.552 As the Commission stated when it adopted the access fee caps, ‘‘[a]ccess fees tend to be highest when markets use them to fund substantial rebates to liquidity providers, rather than merely to compensate for execution services. If outlier markets are allowed to charge high fees and pass most of them through as rebates, the published quotations of such markets would not reliably indicate the true price that is actually available to investors or that would be realized by liquidity providers.’’ 553 The Commission also discussed the potential distortionary effect of high fees and rebates on displayed quotes and sought to assure that displayed prices were within a limited range of net prices.554 In the current national market system, fees for access to protected quotes are typically charged at the highest amount allowed under Rule 610(c) and the vast majority of the fees collected are paid out as rebates.555 This practice results in displayed quotations prices that are not reflective of underlying economics of liquidity supply and demand, but rather displayed quotations prices that have been calculated to account for the receipt of a rebate.556 The Commission is concerned that this structure impairs the fairness and accuracy of displayed quotations. The access fee caps set an outer limit on the cost of accessing protected quotations to ‘‘assure[ ] order routers that displayed prices [are] within a limited range, true prices.’’ 557 In setting the maximum level for the access fees trading centers could charge market participants to access a protected quotation in 2005, the Commission specifically recognized that ‘‘some markets might choose to charge lower fees, thereby increasing their ranking in the preferences of order routers. . . while
[o]thers might charge the full $0.003 and rebate a substantial proportion to liquidity providers.’’ 558 The Commission left it to the markets and competition to determine what strategies would be successful in attracting order flow, subject to the maximum access fee cap.559 Without an access fee cap, the Commission was concerned that certain markets would charge high fees and pass most of them through as rebates, which would undermine price discovery and price transparency.560 The Commission’s concerns when it adopted Regulation NMS, that access fees might gravitate to the highest level permitted by Rule 610 and the impact on price transparency, have been realized to the detriment of investors.561 As discussed below, the reduction in the access fees will improve market quality.562 For those NMS stocks that

563See infra section VII.D.
564See infra section VII.D.2.c.
565See infra section VII.D.2.c.
566See infra section VII.D.2.
567See infra note 1469, and accompanying text. 568See infra section VII.D.2.c. 569See, e.g., Proof Letter at 1; RBC Letter at 4; Ontario Teachers et al. Letter at 2; NASAA Letter at 9; Vanguard Letter at 6; BlackRock Letter at 10; Capital Group Letter at 4; Themis Letter at 7. 570RBC Letter at 4. 571Proof Letter at 1. 572Capital Group Letter at 4. 573Nasdaq Letter I at 2 (stating ‘‘It would be arbitrary and capricious for the Commission to proceed with the Proposal in the absence of evidence that the current fee cap is actually harmful to the market and without meaningfully weighing the costs and benefits of those reductions.’’); Nasdaq Letter III at 6 (stating the Commission ‘‘did not cite any new research conducted subsequent to the Transaction Fee Pilot to support the SEC’s change of position that access fees and rebates are actually harmful.’’). 574Cboe Letter III at 5–6. 575Cboe Letter III at 5–6. 576See, e.g., IEX Letter IV at 2; Better Markets Letter I at 16. 577Better Markets Letter I at 16. 578 IEX Letter VI at 7. 579For example, in 2018, one market participant stated that the preexisting level of the access fee cap may ‘‘create misaligned incentives and potential conflicts of interest for broker dealers’ routing and execution decisions . . . because broker dealers may elect to post non-marketable limit orders on market venues offering the highest rebate and bypass those venues where there is greater likelihood of execution, but a higher fee.’’ Goldman 2018 Letter at 3–4. This market participant went on to state that ‘‘[b]y maintaining the Fee Cap at the level adopted in 2005 as spreads have narrowed and commissions have decreased over the past 13 years, these misaligned incentives and potential conflicts of interest have grown.’’ Id. at 4. According to this market participant, adjusting the access fee cap to 10 mils ‘‘would reduce the effect of these misaligned incentives and the potential conflicts of interest.’’ Id. Further, a decade ago, one commenter stated ‘‘[a] reduction in the cap [to 10 mils] . . . would naturally move more executions back to exchanges.’’ Citigroup 2014 Letter at 7. Another commenter stated in 2015 that a reduction in the access fee cap to 5 mils (half of the amended level adopted) would ‘‘still allow room for exchanges to provide rebates to market participants in order to incentivize liquidity, while at the same time significantly reducing the market distortions and unnecessary complexity that access fees have caused.’’ Letter from Theodore R. Lazo, Managing Director & Associate General Counsel, SIFMA, to Mary Jo White, Chair, Commission, dated May 24, 2015, at 2–3 (stating its support for BATS’ 2015 Petition for Rulemaking to, among other things, reduce the baseline access fee cap to 5 mils). 580See Proposing Release, supra note 11, at 80270 n.35 (stating ‘‘[a]gency market trading centers are those that bring together buyers and sellers and typically charge a fee for their execution services.’’). See also
Regulation NMS Adopting Release, supra note 4, at 37545. 581See, e.g., Citadel Letter I at 22–23; Schwab Letter II at 36; SIFMA Letter II at 39–40. 582SIFMA Letter II at 39–40. 583Schwab Letter II at 36. See also Virtu Letter II at 17–18. are not experiencing a constraint on the quoted spread due to the minimum pricing increment, transaction costs will remain largely unchanged under the amendments as spreads will adjust on average to offset the reduction in access fees and rebates.563 For those NMS stocks that do experience constraint on the quoted spread due to the preexisting minimum pricing increment, transaction costs for liquidity seekers will go down and the oversupply of liquidity will be reduced, which will allow for shorter queues and higher fill rates.564 For these NMS stocks, the access fee functions as a tax on liquidity demand.565 Reducing the access fee in these constrained stocks will result in savings for investors.566 Further, while some commenters stated that exchange volume would decline and that OTC trading would increase if the access fee caps were reduced, as discussed below,567 analysis indicates that liquidity providers would not be deterred from quoting on exchange because they will be able to widen their quote to reflect the reduced rebate, thereby receiving the same economic profit as they received with the rebate. Liquidity demanders would not be worse off because the reduction in access fee would offset, or, in the case of stocks with an economic spread of less than a tick, more than offset, the increase in spread.568 Some commenters stated that the reduced access fee caps would help to address potential conflicts of interest in routing decisions that may harm execution quality of customer orders.569 One commenter stated that ‘‘lowering the access fee cap would lead to a reduction in broker conflicts of interests.’’ 570 Another commenter stated that the proposal ‘‘will help to reduce the extent of the conflict of interest in agency routing decisions.’’ 571 Another commenter stated ‘‘[w]e have long supported the Commission addressing the conflict faced by brokers related to incentives created by access fees and rebates in the maker/taker model’’ and that ‘‘a simple reduction of access fees across all venues to $0.001 would go a long way in mitigating order routing conflicts.572 Another commenter, however, stated that the Commission did not provide any new data to support its position that access fees and rebates are ‘‘actually harmful to the market’’ and further stated that ‘‘the Commission’s supposition that rebates present harmful conflicts-of-interest to brokers is not supported with evidence, and it ignores the countervailing benefits associated with rebates, which are essential tools for gathering the displayed quotes that form the NBBO.’’ 573 Another commenter stated that ‘‘half of the rebates on Cboe accrue to non-agency market-making activity—thus, there is no real or perceived conflicts of interest’’ and for
agency order flow, some of that flow is ‘‘‘directed’ meaning clients give specific instructions for the order to be routed to a particular venue for execution’’ and thus there similarly is no conflict.574 This commenter further stated, ‘‘brokers have a duty of best execution regardless of the pricing model used by the exchange.’’ 575 The Commission disagrees with those commenters that questioned the existence of potential conflicts of interest. The Commission has received comments from market participants that have stated that potential conflicts of interest are a concern because of the fee/ rebate models. Some commenters stated that fees and rebates that are currently benchmarked against the 30 mil cap have a negative impact on routing practices 576 and one commenter offered evidence that ‘‘exchanges that pay the highest rebates often provide worse execution quality.’’ 577 Another commenter provided data it said demonstrates that ‘‘poor execution quality is directly linked to high access fees.’’ 578 Moreover, the Commission has heard similar concerns about potential conflicts of interest created by the fee and rebate schedules and their impact on market quality for many years.579 The 10 mils access fee cap is appropriate because it will mitigate the potential conflicts of interest associated with the current fee and rebate models, while still allowing exchanges to use rebates to attract liquidity.
c. Agency Market Business Model
Several commenters stated that the Commission should not consider whether the proposed lowered access fee caps would unduly impair current agency market business models 580 as a factor in its analysis.581 According to one commenter, ‘‘setting access fee caps, or designing any aspect of market structure, specifically to preserve or protect existing exchange fee models is an inappropriate policy rationale.’’ 582 Similarly, another commenter stated that it ‘‘is not the Commission’s role to ensure that trading centers ‘maintain their current net capture rate.’ ’’ 583 Further, one commenter stated that while, in its opinion, it would be appropriate for the Commission to ‘‘assess the impact of the proposed access fee cap on market participants’ varying business models,’’ it must ‘‘then account for the impact of the proposed access fee cap on all market participants and attempt to create the most

584 Virtu Letter II at 18.
585See Regulation NMS Adopting Release, supra note 4, at 37545 (‘‘stating ‘‘the adopted [30 mils] fee limitation will not impair the agency market business model.’’). 586The Commission used these same estimates to determine the changes in the amount that liquidity demanders would pay and the amounts that liquidity providers would receive. See Proposing Release, supra note 11, at section V.D.3 (discussing impact of the proposed lower access fee caps on exchanges’ net capture). 587See Proposing Release, supra note 11, at 80290–91 (proposing new caps designed to ‘‘allow current business practices to continue while adjusting access fee levels to align with the proposed lower minimum pricing increments as well as reflect market innovations and technological efficiencies that have driven transaction costs down since rule 610(c) was adopted.’’). 588See Regulation NMS Adopting Release, supra note 4, at 37584. 589See infra sections VII.C.2 and VII.D.2.b and notes 1101–1103 and accompanying text. 590See Regulation NMS Adopting Release, supra note 4, at 37545. For the reasons discussed, the new access fee caps will continue to ‘‘provide the necessary support for the proper functioning of the Order Protection Rule, and private linkages, while leaving trading centers otherwise free to set fees subject only to other applicable standards (e.g., prohibiting unfair discrimination.’’). Id. 591See infra section VII.D.2.b. As discussed below, the fees charged by ATSs for execution services are often in the range of 10 mils. See infra
section VII.C.2, note 1118 accompanying text.
592Rule 610(c) imposes the access fee caps on trading centers, which are defined to include other types of entities that can display protected quotes, including ATSs, OTC market makers and any broker or dealer that executes orders internally. 17 CFR 242.600(b)(106). 593Securities Exchange Act Release No. 73639 (Nov. 19, 2014), 79 FR 72252 (Dec. 5, 2014) at 72277 (Final Rule ‘‘Regulation Systems Compliance and Integrity’’). 594See, e.g., supra notes 460, 463, 466 (recommending a reduction in fee cap to $0.0015). 595See, e.g., ASA Letter at 5 (strongly supporting 10 mils access fee cap for all NMS stocks); Better Markets Letter I at 16; BlackRock Letter at 10–11; BMO Letter at 3–4; Brandes Letter at 3; Boston Partners, Calamos Advisors, Glenmede Investment, and Janus Henderson Letter; Budish Letter; Capital Group Letter at 4; Council of Institutional Investors Letter at 3; IEX Letter IV at 1; Healthy Markets Letter I at 24; Ontario Teachers et al. Letter at 1– 2; Themis Letter at 7–8; Vanguard Letter at 2 & 6; Invesco Letter at 2 and 4; JPMorgan Letter at 6; NASAA Letter at 9; Pragma Letter at 7; XTX Letter at 5; and Verret Letter II. See also supra note 422. 596See, e.g., Ontario Teachers et al. Letter at 2; ASA Letter at 5; Council of Institutional Investors Letter at 3; Better Markets Letter I at 16. 597 IEX Letter VI at 1–2. competitive and effective environment on an overall basis, rather than doing so exclusively for exchanges.’’ 584 In considering whether to adjust the level of the access fee caps, and if so, by what amount, the Commission has considered the impact of such modifications on market participants to help ensure that all investors will continue to have fair and non￾discriminatory access to protected quotations and the Commission has not prioritized exchange revenues over other considerations. When the Commission adopted the access fee caps in Regulation NMS, it considered the impact of the caps on the agency market business model, as it has done in this release as well.585 Agency market trading centers have historically charged transaction fees for their agency services in bringing together buyers and sellers to execute transactions. The Commission is not prohibiting agency market trading centers from continuing to assess fees for providing execution services to access protected quotations. As discussed above, it was appropriate and consistent with its responsibilities under the Exchange Act for the Commission to consider the impact of the original access fee caps on the ongoing viability of different trading centers. Because of the important role agency market trading centers continue to play in the national market system, it is similarly consistent with the Exchange Act for the Commission to undertake a similar analysis today in adjusting the level of the caps. The Proposing Release estimated the effect on exchange net capture because exchanges are the only trading centers that impose fees for access to protected quotations at
this time and, therefore, are subject to the access fee caps.586 Further, the Commission’s analysis in the Proposing Release appropriately considered the impact of proposed changes to Rule 610(c) on entities employing an agency market business model because Rule 610(c) applies to those entities and the Commission was cognizant of not compressing the access fee caps so far as to effectively eliminate such business models.587 As discussed above, the Commission stated that if markets are allowed to charge high access fees and pass most of them through as rebates, the published quotations of such markets will not reliably indicate the true price that is available and investors may be overcharged for taking liquidity.588 As discussed below, the Commission estimated the current net capture of the exchanges at approximately 2 to 6 mils and anticipates that will remain the same under amended Rule 610(c).589 As was the case with the original access fee caps, the amended fee caps will preserve the agency business model because trading centers will continue to be able to assess fees for transaction services at a level that will result in the same net capture as they earn today if they so choose. In this manner, the amended fee cap for protected stocks priced $1.00 and above has been ‘‘drafted to have minimal impact on competition and individual business models while furthering the objectives of the Exchange Act by preserving the fairness and usefulness of quotations.’’ 590 In determining the new levels of the access fee caps, the Commission has considered many factors, including allowing for a diversity of business models.591 The amendments to Rule 610(c) will continue to allow the exchanges to provide execution services using their current business models, innovate and compete for order flow, while also reducing the costs to investors who must access protected quotations because access fees are being reduced to amounts above the exchanges’ net capture rates. Exchanges are the only trading centers that currently display protected quotes in the national market system, and they play an important role in bringing together multiple buyers and sellers of securities.592 Exchanges are also responsible for certain important processes in the national market system, including openings, re-openings, and closings on the primary listing market; trading halts; initial public offerings and exclusively listed securities. The exchanges, along with FINRA, are also responsible for producing data for the consolidated market data feeds as well as the operation of the exclusive SIPs. In addition, the Commission has recognized these functions as ‘‘critical’’ to the operation of the securities markets for purposes of imposing requirements under Regulation SCI, which established a regulatory framework for oversight of the core technology of the U.S. securities markets.593 Therefore, it continues to be appropriate to consider the impact on this business model, i.e., the agency
market business model, when considering amendments to the access fee caps. d. Comments on the Proposed 10 Mils Access Fee Cap There was divergence of opinion around the appropriate level of the access fee cap for protected quotations priced at $1.00 or greater.594 A number of commenters viewed 10 mils as the appropriate level.595 Commenters stated that a reduction in the level of the access fee cap to 10 mils is warranted because, among other reasons, it will result in lower costs to investors to access protected quotes; 596 align access fees with other elements of investor transaction costs (all of which have decreased); 597 recalibrate the access fee cap levels to reflect increased efficiencies, technological

598See, e.g., Ontario Teachers et al. Letter at 1– 2; Brandes Letter at 3; Invesco Letter at 4; Vanguard Letter at 6; Verret Letter I at 5; Verret Letter III at 4–5; Letter from John Ramsey, Chief Market Policy Officer, IEX, dated Feb. 23, 2024 (‘‘IEX Letter V’’) at 2–3; IEX Letter VI at 4. 599See, e.g., Proof Letter at 1; BMO Letter at 4; Verret Letter I at 9; Ontario Teachers et al. Letter at 1–2; Verret Letter III at 22. 600See, e.g., RBC Letter at 4; BlackRock Letter at 11; Verret Letter I at 7; Verret Letter III at 4–5; IEX Letter V at 5; IEX Letter VI at 5. But see Letter from Kevin R. Edgar, Partner, Baker & Hostetler LLP, dated Feb. 7, 2024, (‘‘Equity Markets Association Letter’’) at 2 (stating ‘‘alleg[ations] . . . that access fees are excessive, both in an absolute sense and relative to ATSes’’ are improper and further stating there is ‘‘no basis for such conclusions other than by making bald assumptions about exchanges’ costs . . . .[N]et transaction fees are far lower on exchanges than they are on ATSes.’’); Nasdaq Letter III at 3 (stating commenters’ analysis of ATS-Ns revealed ‘‘large variations among ATS fees and some of them are similar or higher than exchange fees . . . including fees as high as $0.06); Nasdaq Letter IV at 7–8 (providing data regarding range of ATSs minimum/maximum fees and stating ATS fees are highly variable and 10 mils is not representative of transaction fees on- or off￾exchanges). 601BlackRock Letter at 11. 602RBC Letter at 4. 603ASA Letter at 5. 604See Verret Letter I at 9; Verret Letter III at 22. But see Letter from Barbara Comstock, Executive Director, American Consumer and Investor Institute, dated June 1, 2023 (‘‘ACII Letter I’’) at 6 (commenting generally that fundamental changes to existing market structure could roll back innovations that have ‘‘opened up today’s markets to millions of new and diverse investors.’’); NASP Letter at 2 (commenting generally that proposed NMS changes could harm retail investors by ‘‘making the process of buying and selling stock more difficult and potentially reinstating barriers to entry’’); Nasdaq Letter II at 2–3 (stating ‘‘the cost of access fees has actually fallen since 2005 by one￾third’’ and ‘‘the burden of access fees relative to the all-in trading costs of participants has not grown over time; instead, it has remained relatively flat.’’). 605See, e.g., Council of Institutional Investors Letter at 3; Ontario Teachers et al. Letter at 2; Themis Letter at 8; IEX Letter IV at 13, 23; Better Markets Letter I at 16. 606See, e.g., STA Letter at 7–8; ICI Letter I at 16; Nasdaq Letter I at 2 and 19. 607See supra notes 362 and 364. 608See infra section VII.D.2. 609See supra note 595. 610See Goldman 2018 Letter at 1–2 (stating commenter’s support for reducing the access fee cap to $0.0010 because a 10 mil cap would be calibrated with then-present-day [2018] trading and execution costs, would better ensure displayed prices reflect the actual economic costs of an
execution, and would allow exchanges to continue maintain their current net capture rates, while also choosing to offer rebates to incentivize liquidity provision if they chose to do so). Further, the EMSAC also considered, among other things, whether the access fee cap should be modified. See supra note 4. 611See infra section VII.D.2. 612See infra note 1118. The Commission acknowledges variability within the rates assessed by ATSs, with some transactions subject to fees above 10 mils and some below 10 mils based on attaining certain levels of volume as well as other variability within the fee schedules. Commenters have stated that the fees they experience are often in the range of 10 mils, which is informative in considering an appropriate level of the access fee caps because such statements reflect the current market rate paid for execution services as reported by participants. See infra notes 658–659 and accompanying text. 613See, e.g., BlackRock Letter at 10–11; T. Rowe Price at 4–5; Citigroup Letter at 5–6. 614See, e.g., MEMX Letter at 3 and 24–28; Nasdaq Letter I at 19; William O’Brien, Former CEO, Direct Edge, dated Apr. 13, 2023 (‘‘O’Brien Letter’’) at 5; Optiver Letter at 3. 615See, e.g., Citadel Letter I at 25; FIA PTG Letter II at 3. 616MEMX Letter at 3, 24–28. 617 IEX Letter VI at 3. This commenter further stated that the ‘‘benefits that exchanges have received from technological advances and increased efficiencies in determining their own costs to process orders . . . apply exactly in the same way for trading in all classes of securities’’ and therefore retaining a uniform, lower ‘‘fee cap across all stocks (priced greater than $1.00 per share) avoids further complexity to trading decisions from fees that can vary for the same stock based on changes in the applicable tick size.’’ Id. advancements and structural changes in the markets since Rule 610(c) was adopted; 598 continue to allow for competitive business models and innovation; 599 and align on-exchange pricing more closely with off-exchange venues such as ATSs.600 One commenter stated a 10 mil cap ‘‘would have the added benefit of aligning exchange fees with prevailing ATS fees and creating a more equitable competitive landscape across trading venues’’ 601 and another stated that ‘‘[t]he economic difference to a broker between routing to an . . . ATS [ ] versus an exchange would be much smaller than it is today, if a $.0005– $.0010 access fee cap replaces the current $.0030 mil cap.’’ 602 According to one commenter, lowering the cap to 10 mils should ‘‘(1) lead to an increase in investor interaction with displayed quotes, (2) provide an economic reason for all participants to submit displayed quotes to an exchange, and (3) end the corrosive and discriminatory nature of the current exchange fee and rebate system.’’ 603 Another commenter stated that reducing the level of the cap from 30 mils to 10 mils would ‘‘remove barriers to entry for new market participants,’’ especially
smaller trading firms and retail investors.604 Further, commenters stated that the proposed reduction of the access fee caps would be beneficial to retail investors, as well as institutional investors and long-term investors.605 Several commenters stated their support for reducing the amount of the access fee caps, but cautioned that further analysis is necessary to determine the appropriate amount and parameters of any reduction to avoid unintended consequences.606 The Commission disagrees for a number of reasons. Further delay is not warranted because the access fee caps have been extensively considered for many years.607 In addition, the Commission has weighed several factors in determining to reduce the access fee caps to 10 mils and, as discussed further below in the Economic Analysis, concludes that this reduced level appropriately accommodates various competing interests.608 The adopted level of 10 mils for access to protected quotes priced $1.00 or more reflects the views of many commenters to the Proposing Release 609 and has been suggested by market participants in other contexts.610 Further, as discussed above, a 10 mil cap strikes an appropriate balance between reducing the cap to help to address distortions in the market associated with the preexisting fee caps, while also preserving the ability of the national securities exchanges to continue to operate with their current net capture rates.611 Finally, the Commission has reviewed the fees charged by trading centers that do not have protected quotes so do not have an incentive to charge excessive fees to market participants required to access protected quotes and 10 mils is consistent with the range of rates assessed by such trading centers.612 Other commenters recommended applying different access fee caps depending on the liquidity profile of a particular security.613 Further, some commenters suggested specific alternative models and/or levels of access fee caps.614 A few commenters stated that the access fee caps should be expanded to cover full depth-of-book quotations 615 or auctions.616 However, one commenter disagreed with these concerns and stated that ‘‘the fee cap has been equally applied to all stocks regardless of price, spread, or trading volume since it was enacted’’ and further stated that ‘‘[e]xchange processing costs are exactly the same’’ regardless of these varying characteristics.617 As discussed above, the access fee caps under Rule 610 establish the upper limit for fees that trading centers can charge for access to protected quotations. The access fee caps do not apply to depth-of-book quotations or auctions because these are not protected quotations. As discussed throughout, the access fee caps are designed to preserve fair and efficient access to protected quotations, regardless of the liquidity profiles of NMS stocks. Trading centers are able to develop different fee structures within this construct and in a manner that is consistent with the Exchange Act.
The Commission is not setting the access fee caps to a specific percentage of the

618See supra section III.A and section III.C.1. 619See infra section VII.D.2.a and notes 1419 and 1425. 620See also note 351. 621Nasdaq Letter III at 2. 622See Nasdaq Letter I at 21; Nasdaq Letter II at
4. This commenter stated that ‘‘determining such
costs and setting appropriate rates based upon those costs are inherently difficult’’ and further stated that ‘‘a government agency like the Commission is ill-suited to tackle [such a task]’’ and should refrain from doing so. Nasdaq Letter I at 22. See also Cboe Letter III at 5; Nasdaq Letter III; Equity Markets Association Letter at 2. 623Nasdaq Letter II at 4–5. 624Nasdaq Letter II at 4. See also Nasdaq Letter III at 2; Nasdaq Letter I at 22. 625Nasdaq Letter II at 4. See also Nasdaq Letter III at 2. 626Nasdaq Letter II at 4–5. 627Nasdaq Letter I at 21; Nasdaq Letter II at 4. 628Cboe Letter II at 8. 629 IEX Letter IV at 8. See also Better Markets Letter I at 16 (‘‘There is certainly no economic justification in terms of defraying the exchanges’ costs of processing and matching trades, as those costs have dropped with the advent of advances in technology.’’); Verret Letter III at 13 (‘‘Access fees charged to broker-dealers and other market participants simply to access liquidity on certain exchanges often greatly exceed the actual costs associated with providing that liquidity access.’’). 630 IEX Letter IV at 8. See also Goldman Sachs 2018 Letter at 1–2. 631See IEX Letter IV at 6. 632 IEX Letter IV at 8. 633See, e.g., supra section IV.B.2. 634See Proposing Release, supra note 11, at 80290 n.293. 635Nasdaq Letter I at 21. See also Nasdaq Letter II. 636See generally, Regulation NMS Adopting Release, supra note 4. 637See supra note 608 and surrounding text. 638See infra section VII.D.2.c (analyzing the effects of rebates for providing liquidity). 639Several commenters stated that access fees under the preexisting caps have become a larger portion of overall transaction costs because such costs have decreased significantly since the access fee cap levels were established almost two decades ago. See, e.g., infra notes 1438–1441 and accompanying text and supra 364 and 365 and supra notes 597–598 (describing reasons why costs have decreased). The Commission has considered costs, and specifically commenters’ concerns relating to costs, as one of several factors in its analysis and determination that a 10 mils access fee cap is appropriate. As the Commission stated in 2005, reaching appropriate policy decisions in a complex area such as fees for access to the best quotations displayed in the national market system requires balancing policy objectives that sometimes may not point in precisely the same direction. See Regulation NMS Adopting Release, supra note 4, at 37498. 640See supra section IV.D.1.c. and infra section VII.D.2.b. 641See supra section IV.D.1.c. and infra sections VII.C.2 and VII.D.2.b and notes 1101—1103 and minimum pricing increments in part because they address different regulatory objectives. An important objective of an access fee cap (to preserve access to protected quotes) is distinct from an objective of tick size (e.g., to prevent stepping ahead of displayed orders).618 However, as discussed above, because the Commission is
reducing the minimum pricing increment under Rule 612, it is also reducing the levels of the access fee caps to prevent the distortions that would occur if an access fee is more than one half of the tick.619 Further, amending Rule 610 to adopt variable caps to reflect different liquidity profiles of different stocks would expand and change the objective of the rule, which is to ensure the fairness and accuracy of protected quotations by establishing an outer limit on the cost of accessing such quotations.620 The access fee caps were not designed to establish fees for executions, they were designed to limit the amount of fees that can be charged for access to the best priced quotes in the national market system. Trading centers may adopt fees (and rebates) to incentivize trading in NMS stocks with different liquidity profiles in a manner consistent with the Exchange Act, including the limits imposed by the access fee caps. Another commenter stated that there is no valid basis to support a claim that the current fee cap is excessive.621 This commenter stated that the Commission did not substantiate reduced costs as a justification for lowering the access fee caps.622 This commenter also stated that, ‘‘the Commission present[ed] no cost-based methodology for arriving at the levels of access fee caps it proposes’’ 623 and therefore the proposed caps are ‘‘arbitrary and capricious’’ because the caps do not ‘‘bear a reasonable relationship to the actual costs of executing trades on the exchanges.’’ 624 The commenter further stated that ‘‘[t]echnology costs, and improvements thereto, are not significant determinants of access fee levels.’’ 625 Further, this commenter also stated that ‘‘exchange platform costs’’ (i.e., the constellation of related services of which transaction services are only one part) to market participants have ‘‘remained competitive over time.’’ 626 Finally, according to this commenter, ‘‘access fees and rebates represent more than the simple economic costs to an exchange of effecting a trade; they also reflect the value of the information that quotes provide to the market, and the value to participants of having access to those quotes.’’ 627 Another commenter stated that the current cap was ‘‘rather arbitrarily selected’’ and in its view has ‘‘resulted in continued industry disagreement.’’ 628 However, another commenter disagreed, stating ‘‘the current access fees are unreasonably high when taking into consideration the lower exchange costs stemming from increased efficiencies and technology advancements that have occurred since 2005.’’ 629 Although other trading costs have decreased, access fees have not and, according to this commenter, such fees ‘‘now represent an outsized portion of transaction costs.’’ 630 The commenter further stated it was appropriate for the Commission to rely on reduced costs to justify the reduction in the access fee cap.631 The commenter stated because ‘‘the 30-mil cap exceeds the typical cost to trade
on non-protected venues, it encourages investors to seek alternatives to accessing displayed quotes’’ which drives order flow to off-exchange venues.632 As discussed throughout this release,633 market participants have stated that the access fee caps are outdated and no longer reflect the current market structure. One commenter stated that the Commission, by identifying that the markets have changed due to market innovations and technological efficiencies and that transaction and trading costs had been reduced, and providing statements of market participants to support this statement,634 was suggesting that the access fee cap ‘‘no longer bears a reasonable relationship to the actual costs of a trade.’’ 635 This misconstrues the Commission’s statement recognizing that the markets are different than they were in 2005. Under the preexisting access fee caps, fee and rebate structures have developed such that access fees are predominantly used to pay rebates to liquidity providers and these structures have resulted in distortions in the market. The Commission considered many factors and the views of commenters, and balanced competing factors when it adopted the original fee caps in 2005.636 Likewise, as discussed above, the Commission again has considered and balanced many factors,637 including the effects on liquidity and trading costs for market participants 638 in coming to the determination that the 10 mils access fee cap is appropriate for all protected quotations priced $1.00 or more.639 As discussed throughout this release, the Commission has reduced the caps to a level that is sufficient to mitigate the market distortions associated with the fee schedules that have been developed under preexisting access fee caps and to accommodate the new minimum pricing increments under amended Rule 612, while also preserving the viability of the agency market business model.640 Most exchanges provide access to protected quotations and retain an estimated net capture of 2 mils.641

accompanying text. As discussed below in the Economic Analysis, the Commission estimates for purposes of this release that exchange net capture is 2 mils, while also recognizing that net capture can range from approximately 2 to 6 mils. See infra note 1103. 642See id. 643See id. 644See infra note 357 and discussion below. 645See supra section IV.B.2.b. See also infra
section VII.D.2.c and note 1458 and accompanying
text.
646See infra notes 1116–1118 and accompanying text. 647Nasdaq Letter IV at 8. 648Nasdaq Letter IV at 8. 649 Id. 650Nasdaq Letter IV at 7. This commenter further stated ‘‘nothing beyond anecdotal reports suggests that 10 mils is a representative fee for accessing liquidity off exchange.’’ Id. 651See, e.g., IEX Letter VI at 5 (stating ‘‘ATSs that accept and process orders for NMS stocks in the same way as exchanges do characteristically charge in the range of 10 mils per share.’’); BlackRock Letter at 11 (stating that 10 mil cap ‘‘would have the added benefit of aligning exchange fees with prevailing ATS fees and creating a more equitable competitive landscape across trading venues’’); Verret Letter I at 7 (lowering access fee cap from 30 mils to 10 mils would be ‘‘more in line with the fees charged by most ATS platforms,’’); IEX Letter V at 5 (stating because ATS fees ‘‘are affected by market forces and not pegged by regulation, they are highly relevant to the question of where to set an updated fee cap.’’). See also Letter from Stacey Cunningham, President, NYSE, to Brent Fields, Secretary, Commission, dated Oct. 2, 2018 (commenting on File No. S7–05–18 ‘‘Transaction Fee Pilot for NMS Stocks’’) (stating reducing the access fee cap to 10 mils will bring the access fees exchanges charge to remove liquidity in line with the rates charged by ATSs). 652 IEX Letter VI at 5–6; IEX Letter V at 5–6. 653 IEX Letter VI at 5 (referencing public data showing ATS access fees in the range of 10 mils and below). See also IEX Letter V at 5–6. 654 IEX Letter VI at 5 (stating 10 mils is the relevant comparative rate charged by ATSs). 655 IEX Letter IV at 6. But see Nasdaq Letter V at 2 (stating ‘‘ATSes enjoy advantages [including the ability to segment order flow] that would persist, and likely increase, with a lower cap on access fees.’’). 656See infra sections VII.C.2.b and VII.D.2, note 1118 and accompanying text. See also Proposing Release, supra note 11, at 80314 (stating a review of form ATS-Ns on which ATSs provide a range of the fees charged shows such fees are often in the range of 10 mils). 657See supra note 651. 658See, e.g., IEX Letter I at 22–23; IEX Letter IV at 14–15; IEX Letter V at 5–6; BlackRock Letter at 11; Verret Letter II at 4. See also Letter from Stacey Cunningham, President, NYSE, to Brent Fields, Secretary, Commission, dated Oct. 2, 2018 (commenting on File No. S7–05–18 ‘‘Transaction Fee Pilot for NMS Stocks’’) (stating reducing the access fee cap to 10 mils will bring the access fees exchanges charge to remove liquidity in line with the rates charged by ATSs). According to one commenter, ‘‘the rates charged by ATSs to access liquidity allow comparison to market-based prices that are not affected by prices imposed by exchanges to access protected quotes . . . [and] an informal survey of ATS operators indicates that the standard access fee charged by most ATSs is approximately 10 mil.’’). See also supra note 651 and accompanying text.
659See Letter from Theodore R. Lazo, Managing Director & Associate General Counsel, SIFMA, to Brent J. Fields, Secretary, Commission, dated Mar. 9, 2017, at 8 (stating ‘‘a significant portion of access fees are used to subsidize rebates with the exchanges’ net capture reflecting today’s market norms for accessing liquidity, which is approximately 3–5 cents per 100 shares traded . . . or 3–5 mils.).’’ However, as discussed below,642 a net capture of 2 mils is not uniform across all exchanges and some have an estimated net capture that is higher than 2 mils.643 This suggests that the preexisting levels of the access fee caps are higher than necessary to preserve the viability of the agency market business models. The adopted level of 10 mils for access to protected quotes priced $1.00 or more is appropriate because it will allow trading centers to continue to provide access to protected quotations and retain a net capture to fund their transaction services. Recalibrating the level of the cap with a consideration of current market rates to provide execution services is appropriate and consistent with how the Commission set the preexisting rates.644 Finally, as stated above, the access fee caps were not developed as a means to enable the payment of rebates. However, under the preexisting access fee caps, access fees are predominantly used to fund the rebates paid to liquidity providers. As also stated above and discussed further below, liquidity providers are able to post bid and offer prices that account for the risk of displaying protected quotations without needing the payment of a rebate.645 In deciding to adopt a single 10 mil fee cap for all protected quotes in NMS stocks priced $1.00 or more, the Commission has also considered the rates charged by other agency markets for access to non-protected quotation liquidity because such trading centers are not subject to the preexisting 30 mils access fee cap and therefore the rates for execution services established by such markets are subject to competitive market forces that are not capped.646 One commenter stated that ATS fees are not a good benchmark to determine the appropriate level of exchange access fees because, in their view, exchange access fees should be higher than off￾exchange venues’ access fees.647 This commenter stated that ‘‘[e]xchange access fees compensate for the risk associated with posting lit quotes as well as the value associated with accessing immediate liquidity.’’ 648 In addition, according to this commenter, exchange pricing is ‘‘designed to attract quotes, whereas ATS pricing is designed only for trades’’ and ATSs ‘‘leverage lit quotes’’ produced by exchanges to determine ATS’s transaction pricing.649 Finally, this commenter stated that the rates charged by off-exchange venues ‘‘vary significantly in structure, functionality, and fees’’ to the extent they are actually known publicly and disagreed with the conclusion that ‘‘10 mils is a representative fee for accessing
liquidity off exchange.’’ 650 Other commenters disagreed.651 According to one commenter, certain ATSs provide specialty services such as block trading and the ability to use conditional order types to achieve certain trading strategies, and typically charge higher than 10 mils for such specialized services.652 However, according to this commenter, ATSs that operate a continuous book market are similar to exchanges that provide similar services and those ATSs charge ‘‘a maximum rate of 10 mils’’ for such services and such venues collectively represent approximately 42% of all ATS volume during 2023.653 According to this commenter, ‘‘this data is strong evidence that the standard comparative rate for immediate access to liquidity in NMS stocks on ATSs that offer this [continuous book] service is, in fact, 10 mils per share.’’ 654 This commenter further stated that exchanges are ‘‘able to charge higher prices than other markets, precisely because of the ‘protected quote’ status’’ which is ‘‘what the SEC sought to prevent in 2005, in furtherance of the statutory goal of fair distribution of quotation information.’’ 655 The fees charged by many ATSs that provide execution services similar to exchanges are often reflected in a range and sometimes are based on volume transacted, and ATSs typically do not pay rebates.656 As stated above, several commenters stated that a 10 mils access fee cap would be consistent with the access fees charged by ATSs.657 These statements are informative in considering an appropriate level of the access fee caps because they reflect the current market rate paid for execution services as reported by market participants.658 This, in concert with the net capture rates discussed above, suggests that the current access fee caps may not be consistent with current market rates for providing execution services.659 Considering the rates charged by trading centers is consistent with the analysis the Commission conducted to determine the appropriate level of the preexisting access fee caps when it adopted them. Specifically, the Commission considered the access fees charged by ECNs and other types of trading centers, including self￾regulatory organizations (‘‘SROs’’), when it adopted the preexisting 30 mil

660See Regulation NMS Adopting Release, supra note 4, at 37545. 661See Regulation NMS Adopting Release, supra note 4, at 37545 (stating that the $0.0030 per share cap largely codified the then-prevailing fee level set through competition among the various trading centers). 662See supra note 357 and infra section VII.D.2. 663Cboe Letter II at 9. The Commission conducted similar analysis when it adopted preexisting Rule 610(c), and as discussed below, having different access fee caps apply to a bid that is priced under $1.00 and an offer that is priced over $1.00 in the same NMS stock would create pricing distortions. See infra section VII.D.2.c. 664Cboe Letter II at 9. 665Cboe Letter II at 9. 666Cboe Letter II at 9. 667Better Markets Letter I at 16. 668Themis Letter at 7. 669See infra section VII.D.2.c. As the price of a stock moves across the $1.00 cutoff, its access fee would not experience a discontinuous jump because 0.1% of $1.00 is 0.1 cents, i.e., 10 mils. Such alignment prevents the anomalous result that could occur if the NBB was priced under $1.00 and the NBO was priced over $1.00 and each protected quote would be subject to a different access fee. 670See also infra section VII.D.2.c. 671See also infra section VII.E.2.b. 672See also infra section VII.D.2.c. 673See table 14, infra section VII.D.2.b. 674See infra note 1433 and accompanying text. 675See, e.g., Citigroup Letter at 6; NASAA Letter at 9; MEMX Letter at 41; Nasdaq Letter I at 2; and Nasdaq Letter IV at 12. 676NASAA Letter at 9. 677See, e.g., STA Letter at 8; State Street Letter at 5; CCMR Letter at 27; GTS Letter at 6–7; Nasdaq Letter I at 30. 678CCMR Letter at 27. 679See, e.g., T. Rowe Price Letter at 3–5. See also SIFMA Letter II at 39–40; Chamber of Commerce Letter at 1; Cboe, State Street, et al. Letter at 3; Citadel Letter I at 24–25. 680See IEX Letter III at 4 (‘‘There is clear evidence that the 30-mil ‘limit’ has acted to keep access fees artificially high, leading to price distortions and access fee cap to gain insight into the then current market rates for execution services.660 At the time of adoption in 2005, the $0.0030 fee limitation was based on the then-prevailing market rates for execution services and general business practices, as very few trading centers charged fees in excess of that amount.661 As it did in 2005 in establishing the preexisting fee caps, to determine the appropriate level of the amended access fee caps, the Commission has similarly considered the current market rate for execution services as measured by the rates charged by other trading centers as a factor in considering the level of the adopted access fee caps.662 This factor is useful in calculating the level of the access fee caps, but it is not the only factor. The Commission is balancing the need to set a level of the access fee caps to allow for fair and efficient access while also seeking to ensure that trading centers are not impaired in their ability to provide execution services.
e. Protected Quotes Priced Under $1.00 With respect to the access fee cap for protected quotations priced under $1.00, one commenter stated its view that ‘‘the negative impact of the proposed access fee caps is much more pronounced for securities priced less than $1.00.’’ 663 The commenter stated that for protected quotations priced less than $1.00, the ‘‘estimated revenue impact to exchanges providing rebates in these securities [those priced below $1] is not insignificant’’ and that ‘‘the access fee cap must remain unchanged to support competition, differentiation, and liquidity provision.’’ 664 This commenter also stated that ‘‘[s]implistic proportionality is not a sufficient justification for this reduction’’ and instead ‘‘[a]nalysis of whether there will be proportionate outcomes is necessary to overcome the arbitrary and capricious nature of this reduction.’’ 665 Finally, this commenter stated that the reduction would ‘‘likely impact exchanges’ ability to differentiate, as well as materially limit the transaction revenue that exchanges apply towards developing innovative solutions that contribute to the robustness of the U.S. marketplace.’’ 666 One commenter stated that reducing the access fee cap generally would reduce the disincentive to trade on exchanges because costs would be lower.667 Another commenter stated that the estimated loss in net capture due to the reduction in the access fees for protected quotation priced below $1.00 ‘‘will not harm the major exchanges.’’ 668 The Commission is adopting a modified access fee cap of 0.1% of the share price for protected quotations priced under $1.00. The Commission proposed a lower access fee cap of 0.05% of the quotation price per share in light of the proposed 5 mils access fee cap. Since the 5 mils access fee cap is not being adopted, the Commission has modified the access fee cap for protected quotes priced under $1.00 so that it is consistent with the 10 mils access fee cap for protected quotes priced $1.00 or more. The adopted 0.1% access fee cap will align this cap with the 10 mils access fee cap that will apply to protected quotations in NMS stocks priced $1.00 or greater.669 This alignment is consistent with the access fee caps that apply under the preexisting rule, which are 30 mils and 0.3% respectively. Alignment of the access fee caps for protected quotations in NMS stocks priced below $1.00 and those priced $1.00 and above is necessary to preserve continuity at the $1.00 cutoff to ensure that cost to access a protected quote for an NMS stock that is priced below $1.00 is not more compared to the cost to access a protected quote for the same NMS stock that is priced $1.00 or more.670 For example, an NMS stock could have a protected bid that is priced below $1.00 and a protected offer that is priced above $1.00. If the access fee cap for protected quotes priced below $1.00 remained at the preexisting level, the access fee for the protected bid would be almost three times higher
than the access fee for the protected offer.671 In such an instance, it would cost more to trade against the bid than to trade against the offer and negatively impact incentives for accurate price formation.672 The Commission understands that reducing the access fee cap for stocks priced below $1.00 could reduce exchange revenue.673 This is because exchanges typically charge the maximum fee of .3% for accessing protected quotes priced less than $1.00 and do not offer rebates, or offer rebates in small amounts.674 Accordingly, exchanges typically retain the full amount of the access fee charged. However, in order to prevent the distortions that would occur if a higher access fee cap were applied to protected quotes priced less than $1.00, the Commission is adopting the percentage cap that is aligned with the access fee cap that is applicable to protected quotes priced $1.00 or more to preserve continuity at the $1.00 cutoff. f. Comments on Implementation Some commenters stated that the Commission should build in an evaluation process to assess the benefits and any potential degradations to market quality resulting from changes to the access fee caps.675 One commenter stated that the rule should ‘‘include a mechanism in the rule to periodically re-evaluate the access fee caps set in the proposal to ensure that access fee levels continue to have the anticipated benefits.’’ 676 Others recommended application of the new access fee caps to a smaller subset of NMS stocks before rolling it out to all NMS stocks.677 One commenter stated that changes to access fees should be adopted as part of a pilot to allow for a study of the effects on market quality.678 Another commenter stated the Commission should first collect more data and industry input and conduct further analysis to determine the optimal access fee cap levels before proceeding.679 One commenter, however, disagreed that any delay to collect further data or conduct additional analysis was warranted.680

increasing costs to institutional investors in particular.’’). 681 IEX Letter III at 4. See also Verret Letter II at 4; IEX Letter III. 682National securities exchanges establish and amend their fee schedules by filing proposed fee rule changes, pursuant to section 19(b) of the Exchange Act and rule 19b-4 thereunder, for Commission review. National securities exchange fee schedules are posted on their websites. See Rule 19b–4(l). Some national securities exchanges currently use volume calculated on a monthly basis to determine the applicable threshold or tier rate. See, e.g., fee schedules of Nasdaq PSX available at https://www.nasdaqtrader.com/ Trader.aspx?id=PSX_pricing (as of Mar. 2024) (calculating fees based on ‘‘average daily volume during the month’’) and Cboe EDGA available at https://www.cboe.com/us/equities/membership/fee_
schedule/edga/ (as of Mar. 2024) (calculating fees
based on ‘‘average daily volume’’ and ‘‘total consolidated volume’’ on a monthly basis). 683This amendment to Rule 610 does not alter an exchange’s ability to determine the measurement period during which volume is calculated (e.g., a week prior, two weeks prior, or prior monthly), rather the rule will instead require the measurement period to be prior to the date of execution so that market participants can determine the amount of the fee at the time of execution. 684See, e.g., Ontario Teachers et al. Letter at 2; ASA Letter at 6; Angel Letter at 8; Letter from Kelvin To, Founder and President, Data Boiler Technologies, LLC, dated Apr. 12, 2023 (‘‘Data Boiler Letter II’’) at 3 (agreeing with Angel Letter); Citigroup Letter at 6; BMO Letter at 4; Council of Institutional Investors at 4. See also Comment Letter Type H, available at https://www.sec.gov/ comments/s7-30-22/s73022.htm. 685See, e.g., BMO Letter at 4; NASAA Letter at 9. 686 IEX Letter I at 28–29. See also Letter from Stanislav Dolgopolov, Chief Regulatory Officer, Decimus Capital Markets, LLC, dated Mar. 31, 2023, at 3 (‘‘Decimus 2023 Letter’’). 687Angel Letter at 8. See also BMO Letter at 4; Healthy Markets Letter I at 25. 688Fidelity Letter at 15. See also ICI Letter I at 17. 689Nasdaq Letter I at 32. See also Letter from Tyler Gellasch, President & CEO, Healthy Markets Association, dated Aug. 1, 2023 (‘‘Healthy Markets Letter II’’) at 11. 690See, e.g., RBC Letter at 5; ASA Letter at 5; IEX Letter I at 29; Letters from Kelvin To, Founder and President, Data Boiler Technologies, LLC, dated Mar. 31, 2023 (‘‘Data Boiler Letter I’’) at 5; Themis Letter at 1 (expressing support for the proposal, but expressing disappointment that the Commission did not go further and calling for the elimination of rebates); Healthy Markets Letter I at 24 (‘‘If two different brokers send the exact same order to an exchange, they should get the same pricing for that order. Pricing should be based on the order being sent, not the other business or trading by the party sending it.’’). 691RBC Letter at 5. See also Proof Letter at 1–2 (supporting requiring exchange pricing to be Continued According to this commenter, there is a ‘‘mountain of evidence supporting a reduction in the access fee cap from current levels’’ and ‘‘general consensus in favor of reducing the cap.’’ 681 The Commission disagrees with commenters’ suggestions that further study be conducted before adopting the amendment or that the amendment should be incrementally rolled out. A delayed or incremental approach to reducing the preexisting access fee caps would delay the benefits to investors of the reduced caps. The Commission has extensively considered the adopted amendments, reviewed all comments letters and conducted extensive economic analysis in deciding to adopt this amendment. The amended access fee caps will provide savings for investors and should be implemented. E. Final Rule 610(d) Requiring That All Exchange Fees and Rebates Be
Determinable at the Time of an Execution Many exchange fees and rebates are calculated at the end of the month, which impedes the ability of market participants, including investors, to understand at the time of execution the full cost of their transaction. For example, the exchanges have developed complex fee and rebate schedules, some of which include tiers or other incentives based on a market participant’s relative monthly trading volume or relative volume compared to the consolidated trading volume in the current month, with higher volume tiers receiving a higher (lower) per unit rebate (fee). This means that the exact fee or rebate amount for an order cannot be determined until the end of the month, after an execution occurs, and is not known to the parties to the trade at the time of execution. Further, uncertainty regarding the fee amount at the time of execution can hinder the ability of market participants to conduct best execution analyses and can affect order routing decisions. To provide further transparency regarding transaction pricing, the Commission proposed to amend Rule 610 to add a new subsection (d) ‘‘Transparency of Fees,’’ which would prohibit a national securities exchange from imposing, or permitting to be imposed, any fee or fees, or providing, or permitting to be provided, any rebate or other remuneration (e.g., discounted fees, other credits, or forms of linked pricing) for the execution of an order in an NMS stock unless such fee, rebate or other remuneration can be determined by the market participant at the time of execution. As the Commission explained in the Proposing Release, under proposed Rule 610(d), any national securities exchange that imposes a fee or provides a rebate that is based on a certain volume threshold, or establishes tier requirements or tiered rates based on minimum volume thresholds, would be required to set such volume thresholds or tiers using volume achieved during a stated period prior to the assessment of the fee or rebate so that market participants are able to determine what fee or rebate level will be applied to any submitted order at the time of execution.682 For example, if an exchange proposed a lower fee for members that reach a certain level of trading volume in a month, the required level of trading volume would have to be achieved based on a month prior to the imposition of the fee or payment of the rebate.683 The Commission has considered commenters’ views (as discussed below) and is adopting Rule 610(d) as proposed. Investors can use this information to assess their broker￾dealer’s routing decisions and such information will help to inform market participants’ best execution analysis.

1. General Comments
   The Commission received comments from a broad range of commenters who stated that proposed Rule 610(d) would provide enhanced transparency surrounding transaction fees and rebates 684 and alleviate concerns related to potential conflicts of interest.685 One commenter stated that proposed Rule 610(d) would ‘‘shed greater transparency on the use of fee and rebate tiers and their impact on individual trades’’ and ‘‘help to address concerns related to conflicts of interest[ ] because . . . investors will be in a better position to identify and seek the recovery of rebates that accrue specifically to their orders . . .’’ 686 Further, one commenter stated that such a change is ‘‘a great step forward and long overdue,’’ 687 and another commenter stated that it would be ‘‘a positive outcome for the industry and investors and w[ould] reduce market complexity and increase transparency.’’ 688 One commenter stated that Rule 610(d) ‘‘has the potential to facilitate broker-dealers in passing-through access fees and rebates to their customers, and in doing so, it could alleviate concerns [ ] about perceived conflicts-of-interest associated with the maker-taker model and the provision of exchange rebates to broker-dealers.’’ 689 Other commenters’ support for Rule 610(d) was more measured because they stated that the proposal did not go far enough to address market distortions resulting from fee and rebate tiers.690 One such commenter stated that although it was ‘‘encouraged about eliminating the retroactive attributes of exchange volume tiers,’’ it felt a ‘‘more optimal solution [ ] would be to remove them entirely’’ 691 because ‘‘exchange

computable at the time of the trade but questioning what, if any, impact this will have on complexity of existing pricing tiers and expressing preference that the Commission adopt a ‘‘more drastic policy change.’’); IEX Letter I at 6. 692RBC Letter at 5. See also Citigroup Letter at 6; Proof Letter at 1–2. 693 IEX Letter I at 29. See also Citigroup Letter at 6; John Ramsay, Chief Market Policy Officer, Investors Exchange LLC, dated Sept. 20, 2023 (‘‘IEX Letter II’’) at 4; Healthy Markets Letter II at 3–6. However, not all commenters agree that volume￾based fee/rebate tiers are anticompetitive. See, e.g., Cboe Letter III at 6–7 (arguing ‘‘volume-based tiers do not restrain trade or represent a burden on competition . . . By contrast, limiting volume￾based rebate tiers would in fact harm competition and disadvantage the very small and mid-sized brokers who support this myth.’’). 694BMO Letter at 4. See also Fidelity Letter at 15; Proof Letter at 1–2. 695Pragma Letter at 7–8. 696However, a broker-dealer may choose not to offer pass-through of fees, rebates and other forms of remuneration to its customers or may choose not to pass through the entirety of the incentive it receives, or the customer may not want or be able to accommodate such pass-throughs. In these cases, a conflict of interest would continue to exist between the broker-dealer and its customer when the broker-dealer routes the customer’s order for execution based on the broker-dealer’s economic benefit from its routing decision. Notwithstanding, even if pass-through of fees, rebates and other forms of remuneration to customers does not happen, Rule 610(d) will provide certainty regarding the applicable fee/rebate at the time of execution, which will facilitate a customer’s ability to evaluate their broker’s routing decisions and could improve broker-dealer accountability, provide greater transparency regarding executions and lead to improved order execution for customers. See infra
section VII.D.3.
697See id.
698See infra section VII.D.3.
699Nasdaq Letter I at 2, 31–32.
700See Proposing Release, supra note 11, at
80287. If an ATS or OTC market maker displayed
a protected quotation, its fees would be subject to the access fee caps under rule 610(c). However, exchange fees and the fees of non-exchange trading centers are treated very differently under the Federal securities laws. For example, one of the distinguishing features of registered national securities exchanges is that—unlike non-exchange trading centers—their fees are subject to the principles-based standards set forth in the Exchange Act, as well as the rule filing requirements thereunder. 701 15 U.S.C. 78(f)(b) and (s)(b). 702 17 CFR 240.19b–4. 703 17 CFR 240.19b–4(m)(1). 704 15 U.S.C. 78f(b)(4) and (5). See also Proposing Release, supra note 11, at 80287. volume tiers create barriers to entry that only benefit the largest, most active trading firms at the expense of smaller competitors.’’ 692 One commenter stated its support for Rule 610(d), but also stated that the Commission should ‘‘take additional steps . . . to prohibit or restrict the use of CADV-based tiers,’’ which in this commenter’s view are ‘‘by their nature [ ] highly anti-competitive and discriminatory.’’ 693 Further, one commenter ‘‘encouraged the Commission to review and address the issue of ‘bespoke’ pricing tiers prevalent in today’s volume tiered pricing models.’’ 694 Another commenter, while agreeing with the objective of fee transparency, was skeptical that Rule 610(d) ‘‘would ‘materially reduce’ uncertainty regarding the fee amount at the time of execution’’ and stated that the proposal would provide ‘‘little practical transparency for most Market Participants.’’ 695 Rule 610(d) will provide additional certainty, transparency and clarity to exchange fee structures, which will assist investors and other market participants in assessing their order placement. Further, certainty about the cost of a transaction at the time of the trade will help broker-dealers make more informed order routing decisions, particularly benefitting customers that are sensitive to transaction costs at the execution venue, because broker-dealers and their customers will know with more certainty the cost of an exchange transaction at the time of the trade. Investors will be able to obtain or request at the time of execution details about the exchange fees and rebates assessed on their orders without having to wait weeks until that pricing is determined and invoiced. In addition, because the rule will allow market participants to know the amount of fees and rebates that are applicable to their transactions at the time of the trade, the rule will facilitate the ability of broker-dealers to pass back to their customers, if the customer requests and the customer and the broker-dealer both are able to accommodate the pass-through of fees, rebates, and other forms of remuneration in a more timely fashion.696 Today, lower fees or higher rebates based on volume achieved in a current trading month can lead to routing for purposes of achieving a certain level of volume or attaining a possible tier level
rather than routing solely to achieve best execution. While tiers that are based on volume from a previous time-period may still incentivize routing by a broker-dealer to try to secure a higher rebate/lower fee tier in the following month, certainty regarding what tier applies at the time of trade will facilitate the ability of a broker-dealer to pass those fees and rebates through to their customers, if they so decide,697 on a more timely basis because they will be known at the time of the trade.698 Requiring certainty regarding the amount of the fee/rebate is an incremental step toward addressing commenters’ concerns regarding the ability of exchanges and brokers to pass back the actual fee or report on each transaction. If market participants pass through in their entirety the exchange fees/rebates to their customers, an ancillary benefit of the new rule will be that the potential inducement to broker-dealers to route orders based on garnering the highest rebate/paying the lowest fee will be reduced since a broker-dealer would no longer retain for itself the transaction pricing benefit from its routing decision. The new rule also will facilitate a customer’s ability to obtain more timely information about what exchange transaction pricing the broker-dealer receives, which may increase accountability of the broker-dealer to the customer in ways that could lead to better order execution and more transparency regarding the fees/rebates applicable to a particular order. Other commenters voiced support for the Commission’s objectives in proposing Rule 610(d), but suggested certain modifications. One commenter stated that it ‘‘did not object in principle to . . . requir[ing] exchanges to set volume-based access fees and rebates as of the time of execution’’ provided other market centers would be held to ‘‘the same standards of transparency.’’ 699 As discussed in the Proposing Release, exchange fees and the fees of non￾exchange trading centers are treated differently under the Federal securities laws.700 Specifically, non-exchange fees are not subject to the requirements applicable to exchange fees under sections 6(b) and 19(b) of the Exchange Act 701 and rule 19b–4 thereunder.702 Exchange fees are subject to the requirements of the Exchange Act and the rules thereunder, which requires, among other things, that every exchange post and maintain a current and complete version of the entirety of each and every fee, due, and charge assessed by an exchange,703 and that such exchange rules applicable to fees must provide for the equitable allocation of reasonable dues, fees, and other charges among its members and issuers and other persons using its facilities and not be designed to permit unfair discrimination between customers, issuers, brokers or dealers.704 Rule 610(d) is consistent with that statutory framework as it provides members and their customers with more certainty and transparency at the time of trade when exchange transaction pricing may be
relevant to, and impactful on, the broker-dealer’s order routing decision. New Rule 610(d) is narrowly tailored to improve certainty and transparency regarding exchange fees and rebates within the current regulatory framework. One commenter stated that the proposal might make it more difficult

705Nasdaq Letter I at 33.
706 Id. at 33.
707Cboe Letter II at 9–10 (stating that removing incentives provided by exchange rebate tiers would drive liquidity off-exchange and negatively impact exchange liquidity provision). See also Data Boiler Letter I at 28–29 (stating that determinable requirement will lead to increased costs that will be passed along to customers as higher commissions or reduced services and could lead to higher barriers to entry because the requirement may cause a ‘‘direct hit to broker-dealers’ bottom line’’ which will force them to ‘‘find alternative ways to squeeze, exploit, or rent seek to cover their losses’’ and urging adoption of ‘‘Copyright Licensing mechanism’’ instead.). 708 Virtu Letter II at 9–10 (stating the ‘‘effort required to understand the volume fee system, forecast volume fees for an upcoming period, and confirm that fees are indeed being calculated appropriately will especially disadvantage smaller brokers, who typically have less resources . . . for needless work such as this.’’). 709 Virtu Letter II at 9. 710Cboe Letter III at 2. 711Cboe Letter III at 6–7. 712 Virtu Letter III at 9–10. 713 Implicit in the use of historical rather than future volume is that market participants will know the amount of the fee/rebate that will apply at the time of the execution. As discussed above, exchange fees are subject to the requirements of the Exchange Act and the rules thereunder, which require, among other things, that every exchange post and maintain a current and complete version of the entirety of each and every fee, due, and charge assessed by an exchange, Because information necessary to calculate the amount of the fee or rebate will be knowable at the time of execution, Rule 610(d) will provide market participants with the ability to determine the fee or rebate due at the time of execution. 714See infra section VII.D.3. 715Citadel Letter II at 6 (stating that comments on Rule 610(d) were provided ‘‘on the basis that volume-based fee tiers were explicitly not being prohibited’’ and requesting the Commission ‘‘propose and publish an analysis assessing the cumulative effect of the two proposals that allows commenters to consider the broader implications (and the Commission’s analysis of those implications) of prohibiting volume-based transaction pricing for certain orders.’’). 716FIA PTG Letter II at 4. See also Citadel Letter I at 25; Healthy Markets Letter I at 26. for smaller broker-dealers to compete against established firms because ‘‘participation in the exchanges’ growth programs’’ might become more expensive in the initial month of participation and ‘‘limit exchanges’ ability to incent market makers and other participants to quote at the NBBO and to do so in a large number of securities, including thinly-traded securities.’’ 705 The commenter did not provide detail as to how these impacts would arise, but requested the Commission to ‘‘exempt growth programs and special pricing programs that reward market makers and other participants for
quoting at the NBBO and providing market quality’’ from the requirements of Rule 610(d).706 Finally, some commenters did not support proposed Rule 610(d) because they stated it would negatively impact the ability to incentivize liquidity provision, ‘‘disrupt[ ] existing economic incentives without justification,’’ 707 add ‘‘an unnecessary layer of complexity,’’ 708 and inappropriately ‘‘wade into the business of telling private companies how to charge their customers.’’ 709 One commenter stated that ‘‘existing fee constructs such as volume-based pricing tiers are important tools that allow exchanges to compete with one another and with non-exchanges.’’ 710 This commenter further stated that volume-based tiers are entirely consistent with the Exchange Act and vital tools exchanges use to ‘‘incentivize greater participation and improve liquidity and market quality.’’ 711 Finally, one commenter stated that the Commission ‘‘include[d] no data [ ] showing this change would cure any harm, nor does it claim any anticipated benefits that might flow from this change.’’ 712 The new rule does not prohibit exchange liquidity provision incentives nor add complexity as suggested by some commenters. It instead shifts the time of calculating fees or rebates so that investors and other market participants are informed, when placing an order, of the amount of the fee or rebate that will be assessed. Rule 610(d) does not alter an exchange’s ability to offer incentive programs based on volume tiers or any another metric; rather it will provide prospective certainty regarding what fee/rebate the market participant will incur/earn by achieving the requisite benchmark. Therefore, exceptions for liquidity provision incentives are not appropriate or necessary. Further, Rule 610(d) does not require exchange fees, rebates or other remuneration to be based on activity from a specific measurement period provided the metric used can be achieved prior to the time of execution, nor does it impose any obligations or additional costs on market participants to perform any new calculations, make new projections or forecasts, or undertake any new responsibilities. The Commission is not requiring market participants to undertake any obligations regarding the calculation of the applicable fee/rebate. Instead, Rule 610(d) will facilitate a market participant’s ability to know the amount of the fee/rebate based on historical (rather than future) volume, so that it can understand how a volume￾based fee/rebate will apply at the time of execution.713 Rule 610(d) will allow market participants to calculate the amount of the fee/rebate using data available at the time of execution rather than have to forecast or estimate the cost of their transaction. As discussed below, this certainty and transparency regarding the fee and rebate that will apply to a particular transaction will benefit market participants and improve market quality.714 Further, one commenter requested the Commission
withdraw proposed Rule 610(d) in light of its subsequent proposed rule addressing volume-based transaction pricing because the proposals are ‘‘inextricably linked’’ and ‘‘so contradictory and indeterminate that the public has not had a reasonable opportunity to comment on what the Commission is actually proposing.’’ 715 The Commission disagrees. The Fee Tiers Proposal remains a proposal. As explained throughout this section, the increased certainty and transparency Rule 610(d) will require will provide benefits to investors and other market participants on its own. Further, the two proposals are not contradictory because Rule 610(d) applies to all exchange fees and rebates not just those that are volume-based, whereas the Fee Tiers Proposal specifically concerns volume￾based pricing and agency-related orders as well as a disclosure requirement that would be fully compatible with Rule 610(d). Accordingly, both proposals are compatible in their different scopes, objectives, and application and so are not in conflict. In addition, Rule 610(d) is not indeterminate but rather straightforward; the public has had the opportunity to comment and many have, in fact, so commented. Another commenter stated the Commission should revise proposed Rule 610(d) to require fees and rebates to be known ‘‘before the time of execution’’ and require ‘‘all affected trading venues to publish their fees in machine-readable format’’ to allow market participants to more readily consume a trading venue’s fee schedule and update participant systems.716 Implicit in the requirement that fees/ rebates be determinable at the time of execution is use of historical, rather than future, volume to benchmark any qualifying criteria for a particular fee/ rebate and thus the fee/rebate would be calculatable or determinable before the time of execution. For a fee to be determinable at the time of execution, it must be ascertainable before or contemporaneously with the execution. Otherwise, the purpose of Rule 610(d)— to provide certainty and transparency regarding what fee/rebate will apply at the time of execution—would be undermined. No change or clarification of Rule 610(d) is necessary because implicit in the requirement that fees/

717See rule 19b–4(m)(1). 17 CFR 240.19b–4(m)(1). 718The MDI Rules adopted the definition of round lot in rule 600(b)(82). This provision was subsequently renumbered to Rule 600(b)(93) by the Rule 605 Amendments. 17 CFR 242.600(b)(93); Rule 605 Amendments, supra note 10. 719The MDI Rules adopted the definition of odd￾lot information in rule 600(b)(59). This provision was subsequently renumbered to Rule 600(b)(69) by the Rule 605 Amendments. 17 CFR 242.600(b)(69); Rule 605 Amendments, supra note 10. 720See MDI Adopting Release, supra note 10. 721See supra note 320. 722The Commission is adopting this amendment to the definition of regulatory data in Rule 600(b)(89)(iv). See supra note 320. 723The Commission is not changing the calculation used to assign round lots or the round lot tiers in the round lot definition adopted in the MDI Rules. 724See MDI Adopting Release, supra note 10. 725See Proposing Release, supra note 11, at 80295 (describing the phased transition plan for the MDI Rules). 726See supra notes 74–78 and accompanying text. 727See supra notes 63–65 and accompanying text for a description of SIP data. 728See supra note 66. 729See supra note 67. 730See supra note 718. 731See supra notes 67–68 and accompanying text. 732See MDI Adopting Release, supra note 10, at 18727. 733MDI Adopting Release, supra note 10, at 18601–02, 18617; see also 17 CFR 242.600(b)(93). 734See MDI Adopting Release, supra note 10, at 18700–01; see also Proposing Release, supra note 11, at 80295, 80298–99. 735See Proposing Release, supra note 11, at 80295. 736See Proposing Release, supra note 11, at 80300–01. 737See infra section VI.C. 738See Proposing Release, supra note 11, at 80295; see also supra notes 74–78 and accompanying text. rebates be determinable at the time of execution is the ability to calculate the fee/rebate prior to execution. Finally, new Rule 610(d) enhances transparency regarding exchange fees and rebates but does not require a specific format for publication of the information. Exchange fees are required to be posted on exchange websites 717 and, as is true today, if market participants need a specific format, they can make such requests to the exchanges.
V. Final Rule—Transparency of Better
Priced Orders
The Commission, among other things, adopted new definitions of round lot 718 and odd-lot information 719 under the MDI Rules to enhance the transparency for investors and other market participants of quotes and orders in NMS stocks that have better prices than what has been provided in SIP data.720 In the Proposing Release, the Commission proposed: (1) to accelerate the implementation of these two definitions adopted under the MDI Rules, (2) an amendment to the definition of ‘‘regulatory data’’ in Rule 600(b)(78)(iv),721 (3) to require each exclusive SIP to represent quotation sizes in consolidated information in terms of the number of shares, rounded down to the nearest multiple of a round lot, and (4) to amend the definition of odd-lot information to include a best odd-lot order. As discussed in detail below, the Commission is: (1) adopting an accelerated implementation schedule for the round lot and odd-lot information definitions, with modifications to the proposed implementation schedule; (2) adopting the amendment to the definition of ‘‘regulatory data’’, as proposed; 722 (3) requiring each exclusive SIP to represent quotation sizes in consolidated information in terms of the number of shares, rounded down to the nearest multiple of a round lot, as proposed; and (4) modifying the Commission’s approach in the Proposing Release by adopting amendments to the round lot definition that will require less frequent round lot adjustments—i.e., semiannually, rather than monthly—by defining a round lot ‘‘Evaluation Period’’ and by specifying an operative period.723 In addition, the Commission is adopting the best odd-lot order data element, as proposed. A. Background The MDI Rules expanded NMS information and established a decentralized consolidation model, pursuant to which competing consolidators will eventually replace the exclusive SIPs for the collection, consolidation, and dissemination of NMS information.724 The Commission adopted a phased transition plan for the MDI Rules,725 which has been delayed.726 Accordingly, NMS information is currently collected, consolidated and disseminated within the national market system by the exclusive SIPs as SIP data.727 Because the MDI Rules are not yet implemented, NMS stock quotation information that is included in SIP data is provided in round lots, as defined in exchange rules,728 and for most NMS stocks a round lot is defined as 100 shares.729 Under Rule 600(b)(93), as adopted by the MDI Rules,730 round lot sizes are assigned to each NMS stock based on its average closing price and those NMS stocks that have an average closing price in the prior month greater than $250.00 will be assigned a round lot in a size that is less than 100 shares. Moreover, because the MDI Rules are not yet implemented, information about orders in NMS stocks that have a size less than a round lot, i.e., odd-lot orders, is available on individual exchange proprietary data feeds, and market participants interested in quotation
information for individual odd-lot orders must purchase these proprietary feeds.731 SIP data includes odd-lot transaction information but does not include odd-lot quotation information, except to the extent that odd-lot orders are aggregated into round lots pursuant to exchange rules.732 The MDI Rules were designed to increase transparency into, among other things, the best priced quotations available in the market.733 Under the MDI Rules’ phased transition plan, the round lot and odd-lot information definitions were scheduled to be implemented during later phases in order to avoid imposing costs on the exclusive SIPs, which will be retired upon full implementation of the MDI Rules.734 Due to the delays in the MDI Rules’ implementation, as discussed in the Proposing Release,735 the Commission is adopting an accelerated implementation schedule, with some modifications from the proposal, so that market participants, including investors, will be provided with the enhanced transparency benefits earlier than anticipated in the MDI Rules. B. Final Rule—Round Lots The Commission is amending the implementation schedule for the round lot definition that was adopted in the MDI Rules. The round lot definition will be implemented on the first business day of November 2025. This adopted compliance date is modified from the proposal, which required compliance with the round lot definition 90 days from Federal Register publication of any Commission adoption of an earlier implementation of the round lot definition.736 The Commission has provided more time than what was proposed so that market participants can update and modify their systems.737 However, the adopted compliance date still accelerates the time by which the definition will be implemented as compared to the preexisting schedule adopted in the MDI Rules.738 In addition, the Commission is amending the round lot definition to include a new definition for an ‘‘Evaluation Period’’ and a provision specifying the operative dates for round lot assignments. These amendments will align the dates for assigning round lots

739See supra section III.C.8. 740See supra note 320. 741See supra note 718. 742 17 CFR 242.600(b)(93). The definition of regulatory data adopted in the MDI Rules also requires that a round lot indicator be included in NMS information so that market participants will know the size of a round lot for each NMS stock. The primary listing exchange must provide, among other things, an ‘‘indicator of the applicable round lot size’’ to competing consolidators and self￾aggregators. 17 CFR 242.600(b)(89); MDI Adopting Release, supra note 10, at 18634. In addition, the MDI Rules require competing consolidators to represent quotation sizes for certain core data elements in terms of the number of shares, rounded down to the nearest multiple of a round lot. 17 CFR 242.600(b)(26)(iii); MDI Adopting Release, supra note 10, at 18615. 743Orders currently defined as odd-lots often reflect superior pricing. See MDI Adopting Release, supra note 10, at 18616 n.241 (describing analysis of data from May 2020 that found that ‘‘approximately 45% of all trades executed on exchange and approximately 10% of all volume executed on exchange in corporate stocks and ETFs occurred in odd-lot sizes (i.e., less than 100 shares), and 40% of those odd-lot transactions (representing approximately 35% of all odd-lot volume) occurred at a price better than the NBBO’’). More recent data and updated analyses confirm that these pricing patterns in odd-lot trading have continued. See Proposing Release, supra note 11, at 80296. 744See MDI Adopting Release, supra note 10, at 18601, 18615, 18742, 18744–45. In the MDI Proposing Release, the Commission explained the importance of increasing transparency into odd-lot quotation information by demonstrating that odd￾lot transactions make up a significant proportion of transaction volume in NMS stocks (including ETPs), through provision of the daily exchange odd￾lot rate (i.e., the number of exchange odd-lot trades as a proportion of the number of exchange trades) for corporate stocks and ETPs in 2018 and in June
2019. See Securities Exchange Act Release No.
88216 (Feb. 14, 2020), 85 FR 16726, 16739 (Mar. 24,
2020) (‘‘MDI Proposing Release’’). For this release,
Commission staff repeated this analysis to determine the daily exchange odd-lot rate for 2023. Based on data from the Commission’s MIDAS analytics tool, the daily exchange odd-lot rate for all corporate stocks ranged from approximately 61% to 70% of trades and the daily exchange odd￾lot rate for all ETPs ranged from 31% to 42% of trades in 2023. Accordingly, accelerating the implementation of the round lot and odd-lot information definitions will increase the pre-trade transparency of better priced orders that are prevalent in the national market system. 745See MDI Adopting Release, supra note 10, at 18612 (table 1). 746See Proposing Release, supra note 11, at 80296–97 (tables 1 and 2). 747See infra section V.B.3.b.iv. Amended Rule 600(b)(93)(iii) defines the Evaluation Period as (A) all trading days in Mar. for the round lot assigned on the first business day in May and (B) all trading days in Sept. for the round lot assigned on the first business day of Nov. during which the average closing price of an NMS stock on the primary listing exchange shall be measured by the primary listing exchange to determine the round lot for each NMS stock. 748See infra section V.B.3.b.iv. The analysis used the average closing price of the NMS stocks on their primary listing exchange for all trading days in Mar. 2023 and used those average prices to determine the size of the round lot for each stock in the universe. Those round lots were then applied to the analysis of the stocks’ trading data for Oct. 23–27, 2023. to the dates for assigning minimum pricing increments under Rule 612.739 Finally, the Commission is also adopting, as proposed, the amendment to the ‘‘regulatory data’’ definition in Rule 600(b)(89)(iv).740

1. Round Lot Definition
   Rule 600(b)(93), as adopted by the MDI Rules,741 defines a round lot for NMS stocks that have an average closing price on the primary listing exchange during the prior calendar month of: (1) $250.00 or less per share as 100 shares; (2) $250.01 to $1,000.00 per share as 40 shares; (3) $1,000.01 to $10,000.00 per share as 10 shares; and (4) $10,000.01 or more per share as 1 share.742 For any new NMS stock for which the prior calendar month’s average closing price is not available, a round lot is 100 shares. As a result of the MDI Rules’ round lot definition, each exchange’s BBO and the NBBO for an NMS stock could be based upon smaller, potentially better priced orders,743 which would improve transparency regarding the better priced quotations available in the market and the ability of market participants to access these quotations.744 In the MDI Adopting Release, the Commission analyzed data from May 2020 on the portion of all corporate stock and ETF volume executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the MDI Rules.745 The Proposing Release repeated this analysis using data for the dates March 25–31,
   2022.746 Both analyses demonstrated
   that the round lot definition adopted in the MDI Rules will capture significant percentages of better priced odd-lot orders for NMS stocks with an average closing price greater than $250.00. The Commission has updated this analysis from the Proposing Release with data from October 2023. As discussed below, upon further consideration and evaluation of comments, the Commission is adopting modifications to the round lot definition to require less frequent round lot adjustments so that they occur on a semiannual basis, rather than on a monthly basis and the calculation of the average closing price on the primary listing exchange will be based on a one￾month ‘‘Evaluation Period.’’ 747 The updated analysis accounts for the modifications to the round lot definition and is based on data from October 23– 27, 2023, using a March 2023 Evaluation Period to be consistent with the adopted rule.748 The updated analysis demonstrates that the round lot definition, as amended, will capture significant percentages of better priced odd-lot orders. Tables 1 and 2 examine the portion of all corporate stock and ETP share volume and trades executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity defined as a round lot under the MDI Rules, as amended by the Commission.
   TABLE 1
   Round lot tier Round lot size (shares) Percent 1 $0–$250.00 .............................................................................................................................................................. 100 0.00 $250.01–$1,000.00 .................................................................................................................................................. 40 52.89 $1,000.01–$10,000.00 ............................................................................................................................................. 10 76.89 $10,000.01 or more ................................................................................................................................................. 1 100.00 1Portion of all corporate stock and ETP share volume executed on an exchange, transacted in a quantity less than 100 shares, at a price bet￾ter than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the MDI Rules as amended, for Oct. 23–27, 2023. Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS; NYSE Daily TAQ.

749See supra note 66. 750See Proposing Release, supra note 11, at 80297 (stating, ‘‘[f]or stocks priced between $250.01 and $1,000.00 per share, which will have a round lot size of 40 under the round lot definition, the price reflected in the simulated competing consolidator feed was better than the exclusive SIP feed 21.47% of the time and worse less than .1% of the time. For stocks priced between $1,000.01 and $10,000.00 per share, which will have a round lot size of 10 under the round lot definition, the price reflected in the simulated competing consolidator feed was better than the exclusive SIP feed 64.67% of the time and worse less than .1% of the time.’’). For the third round lot price tier above $250.01, for stocks priced $10,000.01 or more, the Proposing Release stated that there was one stock that was priced over $10,000 per share and was already quoted in one￾share round lots on the exclusive SIP feed; therefore, the simulated feed and exclusive SIP feed showed the same prices for the stock. Id. at 80297 n.369. 751The Commission assigned a sample of NMS stocks to a round lot tier based upon their average closing prices on the primary listing exchange during Sept. 2023 to account for the adopted definition of Evaluation Period under the round lot definition, which states that the Evaluation Period for the round lot assigned on the first business day of Nov. would be all trading days in Sept. See amended Rule 600(b)(93)(iii). 752See supra note 66. 753 In the third price tier, which defines a round lot for stocks priced $10,000.01 or more per share as an order for the purchase or sale of an NMS stock of one share, only one stock, which is already quoted in one share round lot on the exclusive SIP feed, was priced over $10,000 per share, so the simulated feed and exclusive SIP feed showed the same prices for this stock. 754See supra note 750. 755See supra note 718. 756See Proposing Release, supra note 11, at 80300. 757MDI Adopting Release, supra note 10, at
18701. The Commission stated that ‘‘the
consolidated market data products offered by competing consolidators during the initial parallel operation period would be based on the current definition of round lot.’’ Id. at 18700. However, because the Commission is accelerating the implementation of the round lot definition, the exclusive SIPs will be providing SIP data that reflects the new round lot sizes during the initial parallel operation period. Further, the acceleration of the implementation of the round lot definition will result in its use during the parallel operation period by both the exclusive SIPs and competing consolidators. See supra note 73 for a discussion of the parallel operation period; infra section VI.C for a discussion of the modified compliance deadline. 758See supra notes 73–78 and accompanying text. 759See Proposing Release, supra note 11, at
80295. See also MDI Adopting Release, supra note
10, at 18699–701. The two-year estimated timeframe includes the implementation of the round lot definition, which was scheduled to occur at the end of the transition plan.
TABLE 2
Round lot tier Round lot size (shares) Percent 1 $0–$250.00 .............................................................................................................................................................. 100 0.00 $250.01–$1,000.00 .................................................................................................................................................. 40 13.79 $1,000.01–$10,000.00 ............................................................................................................................................. 10 26.63 $10,000.01 or more ................................................................................................................................................. 1 100.00 1Portion of all corporate stock and ETP trades executed on an exchange, transacted in a quantity less than 100 shares, at a price better than the prevailing NBBO, occurring in a quantity that would be defined as a round lot under the MDI Rules as amended, for Oct. 23–27, 2023. Source: Equity consolidated data feeds (CTS and UTDF), as collected by MIDAS; NYSE Daily TAQ. The Proposing Release also included the results of a simulation conducted by the Commission, using exchange direct feed data from MIDAS for every trading day in March 2022, to create a mockup competing consolidator feed that included quotation information for a sample of NMS stocks priced at or over $250.01 using the priced-based round lot sizes adopted in the MDI Rules’ round lot definition as opposed to the round lot sizes that are defined in current exchange rules (typically 100 shares).749 Snapshots of this simulated feed were compared against snapshots of the exclusive SIP feed for the sample of NMS stocks at the same point in time. For two of the three round lot price tiers above $250.01, the simulated competing consolidator feed showed better prices, on average, than the exclusive SIP feed.750 The Commission has updated this analysis using exchange direct feed data from MIDAS for every trading day in November 2023 and to account for the modifications to the round lot definition.751 Like the prior analysis, the Commission conducted a simulation of a competing consolidator feed that provides quotation information for a sample of NMS stocks priced at or over $250.01 using the priced-based round lot sizes adopted in the MDI Rules’ round lot definition as opposed to the round lot sizes that are defined in current exchange rules (typically 100 shares).752 Snapshots of this simulated feed were compared against snapshots of the exclusive SIP feed for that NMS stock at the same point in time. For two of the three price tiers and corresponding round lot sizes, the simulated feed showed better prices, on average, than the exclusive SIP feed.753 For stocks priced between $250.01 and $1,000.00 per share, which will have a round lot size of 40 under the round lot definition, the price reflected in the simulated competing consolidator feed was better than
the exclusive SIP feed 31.93% of the time and worse less than .1% of the time. For stocks priced between $1,000.01 and $10,000.00 per share, which will have a round lot size of 10 under the round lot definition, the price reflected in the simulated competing consolidator feed was better than the exclusive SIP feed 80.77% of the time and worse less than .2% of the time. The updated analysis continues to demonstrate that the simulated competing consolidator feed, which reflects the round lot sizes adopted in the MDI Rules’ round lot definition, provides better prices than the exclusive SIP feeds, which reflect the prior round lot size, in NMS stocks priced over $250.01, even with the modifications to the round lot definition.754
2. Proposed Acceleration of Round Lot
Definition
The Commission proposed to accelerate the implementation of the round lot definition set forth in Rule 600(b)(93).755 Specifically, the Commission proposed to require compliance with the round lot definition 90 days from Federal Register publication of any Commission adoption of an earlier implementation of the round lot definition.756 In the MDI Adopting Release, the Commission stated that ‘‘sequencing [round lot implementation] after the parallel operation period is important to avoid either: (1) potential confusion and market disruption that could result from two different round lot structures operating at the same time; or (2) imposing reprogramming costs on the exclusive SIPs for a limited time period prior to their retirement.’’ 757 However, because full implementation of the MDI Rules as adopted pursuant to the phased transition plan 758 likely will not occur until at least two years after new proposals to amend the effective national market system plan(s) are developed, filed and approved by the Commission,759 the Commission

760See Proposing Release, supra note 11, at 80300–01. 761See infra section VII.D.5. 762Under the MDI Rules, the definition of regulatory data requires the primary listing exchange to make an indicator of the applicable round lot size to competing consolidators and self￾aggregators. See Rule 600(b)(89)(i)(E), 17 CFR 242.600(b)(89)(i)(E). See also supra note 320. 763 17 CFR 242.600(b)(89)(i)(E). 764See Proposing Release, supra note 11, at 80299. 765See Proposing Release, supra note 11, at
80299. For more details, see MDI Proposing Release,
supra note 744, at 16762.
766See Proposing Release, supra note 11, at 80299; MDI Adopting Release, supra note 10, at 18619. 767See Proposing Release, supra note 11, at
80299. As discussed below, since the MDI Rules
already require the primary listing exchanges to provide an indicator of the applicable round lot size to competing consolidators and self-aggregators, the incremental cost of providing this indicator to the two exclusive SIPs should be low. See infra section VIII.G. 768See Comment Letters Type E, F, G, H, I, J, K, available at https://www.sec.gov/comments/s7-30- 22/s73022.htm; see, e.g., Letters from Aron Tastensen (Feb. 23, 2023); Aswin Joy (Mar. 7, 2023); Abraham (Mar. 14, 2023); Andrew A. (Mar. 19, 2023). 769See, e.g., XTX Letter at 5; BMO Letter at 2; Schwab Letter II at 36; Citigroup Letter at 3; Hudson River Letter at 2; Fidelity Letter at 9, 16; BlackRock Letter at 11–12; Vanguard Letter at 2. 770See, e.g., NYSE Letter I at 7; Nasdaq Letter I at 3; MEMX Letter at 2, 4, 5–6; Cboe Letter II at 2, 10; IEX Letter I at 6, 30; Cboe Letter III at 10 and n.18. The Commission also received comment letters submitted by both exchanges and firms that supported the accelerated implementation of the round lot definition. See Cboe, State Street, et al. Letter at 2; NYSE, Schwab, and Citadel Letter at 2. 771See, e.g., MFA Letter at 3, 13–14; Better Markets Letter I at 16–17; SIFMA AMG Letter I at 9; CCMR Letter at 22; FIA PTG Letter II at 4–5; ICI Letter I at 6–7; SIFMA Letter II at 34, 44; STA Letter at 8. See also AIMA Letter at 3 (stating that the Commission should prioritize the implementation of the round lot definition and the Rule 605 Proposal). 772See Comment Letter Type E, I, available athttps://www.sec.gov/comments/s7-30-22/ s73022.htm; see, e.g., Letters from Bill Gilbert (Mar. 7, 2023); Richard Pasquali (Mar. 16, 2023); IEX Letter I at 6; MFA Letter at 13–14; XTX Letter at 5; Better Markets Letter I at 16–17; BlackRock Letter at 11–12 (stating that accelerated implementation of the round lot and the odd-lot information definitions would increase pre-trade transparency for investors); FIA PTG Letter II at 4; Hudson River Letter at 2; ICI Letter I at 6. 773See, e.g., XTX Letter at 5 (also referring to the proposed publication on the exclusive SIPs of odd￾lots priced better than the NBBO); Cboe Letter II at 10, Cboe Letter I at 10 (stating that the proposed acceleration of the round lot definition and the display of odd-lot orders would improve price discovery and reduce spreads); ICI Letter I at 6. 774See, e.g., IEX Letter I at 6 (referring to the proposed acceleration of the implementation of the round lot definition as well as the display of odd￾lot orders). 775See, e.g., MFA Letter at 13–14; Better Markets Letter I at 16–17; FIA PTG Letter II at 4. 776See, e.g., MFA Letter at 13–14; Better Markets Letter I at 16–17; BlackRock Letter at 11 (stating that accelerated implementation of the round lot and the odd-lot information definitions would result in enhanced execution quality for investors). 777See FIA PTG Letter II at 4. 778See Hudson River Letter at 2. 779See CCMR Letter at 22. 780See, e.g., Letters Type E, G, J, available at
https://www.sec.gov/comments/s7-30-22/ s73022.htm; see also e.g., Letters from Christopher Nieto (Mar. 31, 2023); Michael Montalban (Mar. 31, 2023). 781See, e.g., Letter Type K, available at https:// www.sec.gov/comments/s7-30-22/s73022.htm. 782See, e.g., IEX Letter I at 30; BlackRock Letter at 11 (stating that the proposed acceleration of the implementation of both the round lot and odd-lot definitions would increase the usefulness of the exclusive SIPs because of the prevalence of current odd-lot sizes); MEMX Letter at 4; STA Letter at 8. 783See Proposing Release, supra note 11, at 80296. 784 Id. 785 Id. 786 Id. proposed to amend the phased transition schedule of the MDI Rules to allow the benefits of the round lot definition to be made available to investors sooner.760 The benefits identified in the MDI Adopting Release justify the costs of accelerating the implementation of the round lot definition in this rulemaking.761 Further, as part of accelerating the implementation of the round lot definition, the Commission proposed to amend the definition of ‘‘regulatory data’’ in Rule 600(b)(78) to require the indicator of the applicable round lot size to be provided to the exclusive SIPs for collection and dissemination.762 The preexisting definition of ‘‘regulatory data’’ required the primary listing exchange for an NMS stock to provide to competing consolidators and self￾aggregators an indicator of applicable round lot size.763 The Commission proposed to add new paragraph (iv) to the definition of ‘‘regulatory data’’ to require the primary listing exchanges to also make the indicator available to the exclusive SIPs.764 Referencing the round lot indicator adopted with regard to competing consolidators in the MDI Rules, the Commission stated that such an indicator will ‘‘help market participants ascertain the applicable round lot size for each NMS stock on an ongoing basis’’ 765 and ‘‘reduce confusion as market participants adjust to the new round lot sizes.’’ 766 For these same reasons, the Commission proposed to require this indicator to be provided to the exclusive SIPs for collection and dissemination.767
3. Comments and Response
a. Comments Supporting the Proposed Change The Commission received comments in support of the proposed acceleration of the implementation of the round lot definition from individuals,768 firms,769 exchanges,770 and associations.771 Several commenters supported the proposed acceleration of the implementation of the round lot definition because they said that it would improve transparency 772 and enhance price discovery.773 Several commenters stated that the proposed change would result in more accurate prices,774 allow investors to make more informed trading decisions,775 improve execution quality,776 and reduce transaction costs and inefficiencies.777 One commenter supported the proposed acceleration of the implementation of the round lot definition because the commenter said it would narrow the NBBO spread by incorporating current odd-lot interest and ‘‘mak[ing] the notional size associated with the NBBO more uniform across stock price levels.’’ 778 Another commenter supported the proposal because the round lot definition ‘‘would enhance the accuracy of the NBBO for high-priced stocks.’’ 779 Some commenters supported the proposed acceleration of the implementation of the round lot definition because they stated that this change would restore public trust,780 or because this change and the dissemination of odd-lot information by the exclusive SIPs would enhance reporting efficiency and reduce delays.781 Commenters also supported the proposed acceleration of the implementation of the round lot definition because they stated that the round lot definition would result in lot sizes that would better suit the needs of investors.782 In the MDI Adopting Release, as well as the Proposing Release, the Commission described the benefits of the adopted round lot definition.783 The Commission stated that the new round lot definition will ‘‘narrow NBBO spreads for most stocks with prices greater than $250,’’ 784 improve transparency and ‘‘the comprehensiveness of and usability of core data, facilitate the best execution of customer orders, and reduce information asymmetries.’’ 785 The Commission also stated that the reduced round lot size for high priced NMS stocks would ‘‘better ensure the display and accessibility of significant liquidity for high-priced stocks.’’ 786 Some commenters supported the proposed acceleration of the implementation of the round lot definition but stated that more time than proposed was needed

787See, e.g., NYSE Letter I at 7; Nasdaq Letter I at 3; Fidelity Letter at 16; Cboe Letter III at 10 n.18. 788See infra section VI.C. 789See Fidelity Letter at 16. 790See, e.g., Virtu Letter II at 10; Citadel Letter I at 26; ASA Letter at 6; Tastytrade Letter at 22; SIFMA Letter II at 34; Morgan Stanley Letter at 3. See also Nasdaq Letter I at 34 (stating that ‘‘an effective tick reform proposal may alleviate the need to speed implementation of the round and odd lot proposals.’’). 791See, e.g., Virtu Letter II at 10; Citadel Letter I at 26. 792See Virtu Letter II at 10. 793See ASA Letter at 6. 794See Virtu Letter II at 10. 795See infra section VII.D.4.a. 796See infra section VII.B.2; section VII.D.1. 797See ASA Letter at 6. 798See infra section VII.D.4.a. (discussing the impact of the acceleration of the implementation of the round lot definition and reduced tick sizes and stating that the number of stocks trading over $250 with spreads narrower than $0.015 is ‘‘likely very small’’). 799See, e.g., Virtu Letter II at 10; Citadel Letter I at 26; ASA Letter at 6. 800The Proposing Release stated that, based on average closing prices on the primary listing exchange in Mar. 2022, there were 181 NMS stocks priced over $250. See Proposing Release, supra note 11, at 80300 n.407. 801These NMS stocks were ETFs: SPY and QQQ. As of Nov. 30, 2023, the last sale price for SPY was $454.30 and its average bid-ask spread over the previous 30 trading days was $0.0105. For QQQ, as of Nov. 30, 2023, the last sale price was $386.70 and the average bid-ask spread over the previous 30 trading days was $0.0116. This analysis was conducted using Bloomberg data. See also supra
section III for a discussion of the amended
minimum pricing increments. The calculation of a TWAQS for NMS stocks will occur during an Evaluation Period for purposes of assigning minimum pricing increments. See Rule 612(a)(1). 802SPY and QQQ are also among the most liquid NMS stocks. Using Bloomberg data, for the period Jan. 22, 2024–Feb. 16, 2024, SPY had the highest average daily traded value of all NMS stocks, while QQQ was ranked fourth. Specifically, for this period, the average daily traded value per day for SPY was $36,581,363,712, or 5.9% of total value traded of all U.S. equity trading, and for QQQ the average daily traded value per day was $18,632,960,000, or 3.5% of total value traded of all U.S. equity trading. 803Based on daily average traded value for Nov. 1, 2023–Nov. 30, 2023, using Bloomberg data. For SPY, the daily average traded value for Nov. 2023 for compliance.787 As discussed later in this release, the Commission is providing more time to implement the round lot definition than the 90-days that was proposed for implementation.788 One commenter supported the proposed acceleration of the implementation of the round lot definition subject to ‘‘regulatory and industry-wide education to investors on the changes.’’ 789 As with many regulatory changes, investor education and notification may be useful so that investors better understand the implications of the size of their orders. b. Comments Objecting to the Proposed Change The Commission also received comments that raised objections to specific aspects of the proposed acceleration of the implementation of the round lot definition. These comments are addressed below.
i. Comments on the Interaction Between
the Round Lot Definition and the Proposed Minimum Pricing Increments The Commission received comments that expressed concern about the potential impact of both the implementation of the round lot definition and the proposed changes to the minimum pricing increments.790 Specifically, some commenters raised concerns about the potential impact of both proposed changes on liquidity and NBBO depth.791 One commenter stated that smaller round lot sizes would make the NBBO ‘‘less robust, as a smaller amount of liquidity would now establish the NBBO benchmark,’’ compounded by the proposed reduction in quoting tick sizes that would require liquidity to be dispersed in finer pricing increments.792 One commenter stated that the proposed minimum pricing increments and ‘‘the round lot reforms’’ would be duplicative because they would both result in narrow spreads.793 In addition, one commenter stated that the round lot definition and proposed minimum pricing increments ‘‘would significantly reduce transparency on the SIP and force more participants to purchase costly direct feeds to maintain the same level of transparency of liquidity.’’ 794 Although the Commission agrees that both the round lot definition adopted in the MDI Adopting Release and the amended minimum pricing increments will impact the NBBO and will result in a narrower spread for impacted NMS stocks, the NMS stocks that would be subject to both the round lot definition and the amended minimum pricing increments are likely to be very small in number and also extremely liquid, which could counteract any potential harm to liquidity resulting from the interaction of both changes. The round lot definition adopted in the MDI Adopting Release and the amended minimum pricing increments each will impact the NBBO and each will result in a narrower spread for those NMS stocks that are assigned a smaller round lot 795 or a smaller minimum pricing increment.796 The round lot definition will narrow the spread for NMS stocks that have an average closing price over $250 per share by showing better prices for these stocks. The amended minimum pricing increments will reduce the spread for those NMS stocks that have a narrow TWAQS and will allow these stocks to be priced more competitively in smaller increments, which will more accurately reflect supply and demand. Accordingly, the smaller round lot and the smaller minimum pricing increment narrow spreads in different ways. In response to the comment stating that the round lot definition and the proposed tick size changes are duplicative because they would both result in narrow spreads,797 both requirements will narrow spreads, but they are not duplicative. Although there may be NMS stocks that are assigned both a smaller round lot and a smaller minimum pricing increment, Commission analysis of data discussed below shows that this overlapping universe of NMS stocks is very small. In other words, most NMS stocks will not be assigned both a round lot that is less
than 100 shares and a smaller $0.005 minimum pricing increment and therefore will not experience a combined impact on the NBBO spread or depth. As explained in the analysis, since only a few NMS stocks are expected to be subject to both a smaller round lot and a smaller tick size, the potential combined impact of the amendments to the minimum pricing increments and round lots should be limited.798 Specifically, in response to comments expressing concerns about the combined impact of the proposed smaller minimum pricing increments and the implementation of the round lot definition,799 the Commission conducted the analysis to determine the magnitude of NMS stocks that would be impacted by both changes. According to the Commission’s analysis, as of November 30, 2023, only 163 NMS stocks were priced above $250.00 per share and would have been potentially eligible to be assigned to a round lot size smaller than 100 shares, out of a universe of 11,200 NMS stocks on that date.800 Further, based on Commission review of the 163 NMS stocks that would have been assigned to a round lot less than 100 shares, as of November 30, 2023, only two out of the 163 had an average quoted spread over the previous thirty trading days of $0.015 or less and therefore may have been potentially eligible to have been assigned to the smaller $0.005 minimum pricing increment.801 The two NMS stocks—SPY and QQQ—are among the most liquid exchange-traded products.802 For the month of November 2023, SPY had the highest average daily traded value, while QQQ was ranked second in average daily traded value.803

was $31,652,396,337. For QQQ, it was $17,527,314,000. 804See infra section VII.D.4.a. 805See infra section VII.D.4.a. (stating, ‘‘[t]he exceptional liquidity of the affected stocks will likely protect their NBBO from material deterioration.’’). 806 Id. 807See supra note 66. 808See MDI Proposing Release, supra note 744, at 16738–39 (describing exchange rules on aggregating odd-lot across multiple prices and providing them to the exclusive SIPs at the least aggressive price if the combined odd-lot interest is equal to or greater than a round lot). 809See Proposing Release, supra note 11, at 80294; MDI Adopting Release, supra note 10, at 18616. 810See infra section VII.D.1; section VII.D.1.b.i;
section VII.D.1.b.ii; section VII.E.3.
811See infra section VII.D.1 and note 1145 and accompanying text. 812Once implemented, the MDI Rules will add depth of book information to consolidated market data, and this information will provide information about depth outside of the NBBO for those market participants that would find this information useful. See infra section VII.D.4.a.; MDI Adopting Release, supra note 10, at 18728, 18730 (explaining that SIP data currently only includes top-of-book quotes). 17 CFR 242.600(b)(26)(I) (defining ‘‘core data’’ to include depth of book data) and 17 CFR 242.600(b)(24)(i) (defining ‘‘consolidated market data’’ to include core data). 813See Virtu Letter II at 10. 814See supra notes 807–812 and accompanying text. 815See supra section V.B.1. (table 1 and table 2). 816See MDI Adopting Release, supra note 10, at 18742, 18743. 817See supra section III.C. See also MDI Adopting Release, supra note 10, at 18744, 18745. See also infra section VII.D.4.a. (stating that the round lot definition would shrink the NBBO for stocks priced greater than $250, would increase transparency and would result in better order execution). 818See, e.g., Tastytrade Letter at 22; SIFMA Letter II at 34; Morgan Stanley Letter at 3. 819See, e.g., Tastytrade Letter at 22. 820Under exchange rules, there are three different round lot sizes. See supra note 67. The MDI Rules’ round lot definition adds one more round lot size, i.e., 40 shares. Consistent with its views stated here, the Commission previously considered potential investor confusion with the additional round lot size and did not believe it will be confusing to investors. See MDI Adopting Release, supra note 10, at 18618. 821Preexisting Rule 612 included two minimum pricing increments based on the price of a quote or order—$0.01 and $0.0001. 822See supra section III. See also infra notes 1589–1593 and accompanying text. 823See infra note 1385; MDI Adopting Release, supra note 10, at 18619. Based on this information, while the Commission recognizes that the interaction of the minimum pricing increment and the round lot definition may result in some reduction of depth for the very few NMS stocks that may be subject to both a smaller tick size and a round lot size of less than 100 shares,804 the impact of the reduction of NBBO depth should not be of such a level as to impede trading in the affected NMS stocks because these stocks are highly liquid, which should greatly mitigate the impact of reduced depth at the NBBO.805 Furthermore, these changes will benefit investors and other market participants trading these stocks through more accurate pricing and a reduction in spreads. While the extent of any reduced depth at the NBBO is not known at this time, due to the volume traded in these two NMS stocks, any potential reduction will not impair market participants’ ability to trade these stocks because these stocks would be among the most liquid and therefore easily traded.806 Additionally, some liquidity that is consolidated at
the preexisting round lot 807 and $0.01 minimum pricing increment may be reflected in the adopted round lot sizes and smaller minimum pricing increment. Specifically, some odd-lot orders are currently aggregated into the 100-share round lot.808 Upon implementation of the round lot definition, some orders that were considered odd-lots may be of round lot size as defined. Further, interest that is displayed at the previously required $0.01 minimum pricing increment may be reflected in orders that are entered in the smaller tick size. Once these amendments are implemented, the NBBO will reflect better prices, both because of the smaller round lot size for some NMS stocks and new $0.005 increment for some other NMS stocks. As smaller sized orders in higher priced stocks are often priced better than orders that are currently in round lots, the smaller round lot sizes will allow potentially better priced orders to be the basis of the NBBO.809 The new $0.005 increment will also result in the NBBO reflecting better prices because the smaller increment will allow orders to be priced in a manner that is more reflective of the supply and demand of liquidity for the stock.810 Accordingly, each of these amendments will result in narrower NBBO spreads and better prices.811 Further, those market participants that may need to trade in large sizes may be able to see liquidity outside of the NBBO by considering the new odd-lot information that will be available in SIP data as well as depth of book data that is available via exchange proprietary data feeds.812 In response to the comment that raised concerns about the potential for the proposed variable minimum pricing increments and the new round lots to reduce transparency on the exclusive SIPs,813 for the reasons discussed above,814 the combined impact of the adopted minimum pricing increments and round lot definition should not reduce transparency for most NMS stocks and the exclusive SIPs will provide a more accurate NBBO once these amendments are implemented. While the round lot will be smaller for certain NMS stocks, as described above, the NBBO based on the new round lots will in many cases reflect better prices.815 Therefore, while the actual number of shares will be smaller for certain NMS stocks, the disseminated prices will likely be better.816 In addition, as discussed above, the new minimum pricing increment required under Rule 612 for certain NMS stocks will allow the NBBO that is disseminated by the exclusive SIPs to reflect more competitive pricing. These amendments will enhance the NBBO that is calculated and disseminated by the exclusive SIPs by reflecting more competitive and better available prices.817 Commenters also expressed concern that the implementation of the round lot definition and the proposed changes to the minimum pricing increments would confuse investors.818 One commenter warned that changes to round lots and tick sizes would confuse retail investors and reduce trust in the
market.819 Because there are expected to be only a small number of NMS stocks that could be subject to both a change in a minimum pricing increment and a change to the round lot size, the risk of investor confusion is limited. Market participants may choose to educate investors about the new round lot and amended minimum pricing increments, as they sometimes choose to educate investors regarding other regulatory changes that impact how investors enter orders. Investors are already familiar with three round lot sizes 820 and two minimum pricing increments,821 so the addition of only one round lot size and one minimum pricing increment is unlikely cause investor confusion.822 The Commission is also adopting new indicators for dissemination on the exclusive SIPs of the assigned round lots and minimum pricing increments to alert market participants, including investors, of the relevant round lot and minimum pricing increment for each NMS stock. These indicators will also help to mitigate concerns about any potential for investor confusion.823
ii. Comments on the Round Lot
Indicator
The Commission proposed to amend Rule 600(b)(78) to add a requirement to make the indicator of the applicable round lot size available to the exclusive

824See Proposing Release, supra note 11, at 80299. 825See supra note 320. 826See NYSE Letter I at 7–8; Letter from Robert Books, Chair of the Operating Committee, Operating Committees of the CTA Plan, CQ Plan and UTP Plan, dated Mar. 28, 2023 (‘‘CTA, CQ, UTP Plans Operating Committees Letter’’) at 3. See also infra
section VI.C.
827See infra section VI.C.
828See Proposing Release, supra note 11, at 80300–01. 829See supra note 826; infra section VI.C. 830See, e.g., RBC Letter at 5; Tastytrade Letter at 21; T. Rowe Price Letter at 4; Pragma Letter at 8– 9; Data Boiler Letter I at 8 and Data Boiler Letter II at 2. 831See, e.g., Pragma Letter at 1, 8, 9; T. Rowe Price Letter at 4. 832See, e.g., Tastytrade Letter at 21. 833See, e.g., RBC Letter at 5. 834See Data Boiler Letter I at 8; see also Data Boiler Letter II at 2. The commenter raised concerns about the round lot and odd-lot information definitions. 835See MDI Adopting Release, supra note 10, at 18615–22. 836See Tastytrade Letter at 22. 837See MDI Adopting Release, supra note 10, at 18619, 18747. 838For example, as of Oct. 26, 2023, one NMS stock has a round lot size of 10 shares while also possessing an option contract size of 100 shares. 839See MDI Adopting Release, supra note 10, at
18619. See also infra section VII.D.4.a.
840See, e.g., Nasdaq Letter I at 34–35; XTX Letter at 5; Angel Letter at 2–3; Anonymous Letter (Feb. 12, 2023) (stating that order sizes should be treated the same, regardless of status as a round lot or an odd-lot). 841See MDI Adopting Release, supra note 10, at 18618 n.274. 842See MDI Adopting Release, supra note 10, at 18618 n.274. 843MDI Adopting Release, supra note 10, at 18617. 844See, e.g., FIF Letter at 13; Hudson River Letter at 2, 4; BlackRock Letter at 9, 10. See also SIFMA Letter II at 34, 35 (stating that ‘‘The Tick Size Proposal would make dynamic three components of trading that are static today: (i) tick sizes; (ii) access fees; and (iii) round lots. Exacerbating this complication, tick sizes would adjust quarterly, while round lots would change monthly. Tick sizes would be based on average quoted spread, while round lots are based on a stock’s price.’’); Morgan Stanley Letter at 3 (stating that the proposed amendments would require ‘‘market participants to make frequent changes to their systems . . .’’ that ‘‘. . . the risk of technology failure created by monthly and/or quarterly changes to systems by the buy-side, sell-side, exchanges and vendors (including security information processors) may introduce new market and operational risks . . . ’’ and that ‘‘. . . this dynamic aspect of the proposal could create investor confusion and potentially drive trading inefficiencies.’’). 845Two commenters suggested aligning the assignment of round lots and minimum pricing increments on a quarterly or semiannual basis. See Hudson River Letter at 2, 4; BlackRock Letter at 10. One commenter suggested aligning both assignments on a quarterly basis. See FIF Letter at
13. See also infra notes 849–853 and accompanying
text.
846Hudson River Letter at 4.
847BlackRock Letter at 10.
848See id.
SIPs in Rule 600(b)(78)(iv).824 The Commission is adopting this requirement as proposed in Rule 600(b)(89)(iv).825 The Commission did not receive comments specifically supporting or objecting to the proposed amendment. However, two commenters cited this requirement as support for their arguments that the proposed 90- day compliance deadline for the round lot and odd-lot information definitions would provide an insufficient amount of time.826 As discussed below,827 the Commission is providing more time for compliance with the round lot definition, which is a substantially longer period for compliance than the 90 days that was proposed.828 The Commission is providing a longer compliance period than proposed after considering the information provided by commenters that requested more time to comply with the implementation of the round lot definition, including implementation of the round lot indicator.829 The additional time will provide market participants with time to make the changes necessary to implement the round lot indicator.
iii. Comments on the Round Lot
Definition
The Commission received comments on the round lot definition that was adopted in the MDI Rules.830 Commenters raised concerns about the defined round lot sizes,831 the determination of round lot size based on price,832 the impact of smaller round lot sizes on the relevance of the NBBO,833 and the impact of the round lot definition as well as the odd-lot information definition on bandwidth.834 The Commission considered and addressed issues related to adopting the round lot definition and the odd-lot information definition in the MDI Adopting Release.835 One commenter stated that investors trading in options may be confused by the round lot definition, stating that retail investors who trade options know one options contract represents 100 shares or a ‘‘round lot.’’ 836 The Commission considered and addressed the interaction of the new round lot definition and options trading in the MDI Adopting Release.837 Further, it is unlikely that the acceleration of the round lot definition could confuse retail investors trading in options. Specifically, the round lot size will not change the size of the options contract and precedent exists for standard options contracts on stocks with a round lot size less than 100 shares.838 Furthermore, corporate actions, such as rights offerings, stock dividends, and mergers can result in adjusted contracts representing stock in amounts other than 100 shares, so investors have some familiarity already with options on underlying NMS stocks that have a ‘‘round lot’’ that is less than 100 shares.839 Several commenters also suggested eliminating the concept of round lots altogether.840 The Commission is not eliminating the concept of round lots. As the Commission stated in the MDI Adopting Release, round lot orders continue to play an important role in the national market system by delineating orders of meaningful size and focusing regulatory requirements and protections—such as those set forth in rules 602, 604 and 611 of Regulation NMS—on such orders.841 Further, as the Commission stated in the MDI Adopting Release, eliminating the concept of a round lot could also cause investor confusion and other unintended consequences.842
iv. Modified Round Lot Assignment
Frequency and Evaluation Period for Round Lots Under the MDI Rules, each NMS stock was assigned a round lot size every month based on its average closing price for the prior calendar month on its primary listing exchange.843 Commenters raised concerns about potential confusion and operational risks arising due to the fact that round lots and the proposed minimum pricing increments would be changed at different times,844 and several commenters suggested aligning the assignment of round lots and minimum pricing increments, either on a quarterly or on a semiannual basis.845 One commenter stated ‘‘having two to four adjustments per year strikes the appropriate balance between having the optimal round lot and minimum pricing increment with reducing the time that market participants are adjusting to the changes.’’ 846 Another commenter warned that having differing assignment schedules for round lot sizes and minimum pricing increments ‘‘will materially elevate systemic risk since it only requires a single large market participant to create widespread disruption by failing to properly modify their systems.’’ 847 The commenter suggested reducing the frequency of changes to quarterly or semiannually and synchronizing the round lot and minimum pricing increment changes.848 After further consideration, the Commission agrees with the concerns

849While the Commission proposed in Rule 612(a) to define a quarterly tick evaluation period, it is adopting a semiannual tick Evaluation Period in amended Rule 612(a)(1). See supra section III.C.7.a. 850The Commission’s amendments to Rule 600(b)(93) will also renumber the sub-provisions within rule 600(b)(93). The round lot tiers in preexisting Rule 600(b)(93)(i)–(iv) will be renumbered as Rule 600(b)(93)(i)(A)–(D). Preexisting Rule 600(b)(93)(v) will be amended and renumbered as Rule 600(b)(93)(ii). Preexisting Rule 600(b)(93)(iii)–(iv) will contain provisions related to a new ‘‘Evaluation Period.’’ 851Amended Rule 600(b)(93) and amended Rule 612(a)(1) each define ‘‘Evaluation Period’’ differently. 852See Hudson River Letter at 2, 4; BlackRock Letter at 10. 853 Id. 854See MDI Adopting Release, supra note 10, at 18619. 855 Id. 856See infra section VII.D.1.d for a discussion of the semiannual evaluation of minimum pricing increments. As discussed above, the Commission is aligning the assignment of round lots and minimum pricing increments. A longer round lot assignment frequency, such as annual assignments, would more likely result in round lot sizes calculated based on prices not reflective of current trading. Limiting round lot reassignments to a frequency of once every six months was determined to be sufficient to achieve the goals stated in the MDI Adopting Release, while reducing costs and complexity for market participants. See also infra notes 1594–1595 and accompanying text (discussing the impact of the semiannual evaluation period and the lag between evaluation and implementation on the accuracy of round lot assignments). raised by the commenters. Frequent systems changes and updates can introduce risks for market participants and the market, and frequent changes to the terms of how an order is entered for an NMS stock can potentially cause investor confusion. Therefore, the Commission is amending the round lot definition to make the timing for assigning round lots consistent with the timing for assigning minimum pricing increments. Such alignment on a semiannual basis will help to facilitate an orderly market and help reduce operational risks and investor confusion. As described above, the Commission is adopting a definition of Evaluation Period under Rule 612 that will result in the assignment of minimum pricing increments on a semiannual basis instead of on a quarterly basis, as proposed.849 The Commission has therefore decided to amend the round lot definition to change the frequency of round lot changes from a monthly basis to a semiannual basis (the round lot sizes and price tiers for assigning round lots adopted in the MDI Adopting Release have not changed). Specifically, the Commission is amending Rule 600(b)(93) to require round lots to be assigned on a semiannual basis instead of on a monthly basis, which will match the minimum pricing increment assignment frequency of amended Rule
612.850 Amended Rule 600(b)(93)(i) will
assign each NMS stock to a round lot size based on the NMS stock’s average closing price on the primary listing exchange during a one month Evaluation Period. Amended Rule 600(b)(93)(iii) will define the Evaluation Period as (A) all trading days in March for the round lot assigned on the first business day in May and (B) all trading days in September for the round lot assigned on the first business day of November during which the average closing price of an NMS stock on the primary listing exchange shall be measured by the primary listing exchange to determine the round lot for each NMS stock.851 Further, amended Rule 600(b)(93)(iv) will provide time for market participants to implement any reassignments of round lots and provides that the assigned round lots will be operative until the next semiannual date for a new round lot change. Specifically, round lots assigned under Rule 600(b)(93) shall be operative on (A) the first business day of May for the March Evaluation Period and continue through the last business day of October of the calendar year, and (B) the first business day of November for the September Evaluation Period and continue through the last business day of April of the next calendar year. For both round lots and minimum pricing increments, the adopted semiannual assignment dates will be the first business day in May and the first business day of November. Like amended Rule 612, in amended Rule 600(b)(93)(iv) the Commission is adopting a one-month time period between the conclusion of each Evaluation Period and each operative date (i.e., the date on which the round lot assignment becomes effective) to provide market participants with time to implement any new round lot assignments. These changes address concerns about operational risks and will help to ensure the orderly implementation of the systems changes necessary to implement the new round lots and minimum pricing increments. Further, market participants will be able to use the one-month implementation period to communicate with investors about any upcoming changes, which will help to minimize potential investor confusion. These amendments are responsive to commenters who suggested aligning the assignment of round lots and minimum pricing increments.852 By aligning the timing for assigning round lot sizes to the timing for assigning minimum pricing increments, there will be fewer modifications to market participants’ systems and they will have more time to implement such systems changes. These amendments to the round lot definition address commenter concerns about systemic risk and the risk of market disruptions because market participants will only have to make systems changes two times per year for round lot assignments and tick reassignments rather than twelve and four times per year, respectively.853 These amendments to make the assignment of round lots uniform with the assignment of minimum pricing increments will reduce potential confusion for investors because they
will only have to understand two round lot assignments per year instead of twelve. The Commission is not changing the round lot sizes, pricing tiers or the calculation used to assign round lots. As originally adopted, round lots were assigned based on the average closing price of the prior month on the primary listing exchange. Under Rule 600(b)(93)(iii), round lots will be assigned based on the average closing price during a specified month, e.g., March or September on the primary listing exchange. In the MDI Adopting Release, the Commission explained that assigning a round lot size based on the NMS stock’s average closing price on the primary listing exchange for the prior calendar month would strike ‘‘an appropriate balance between using accurate, up-to￾date pricing information and avoiding the cost and complexity of over-frequent computation and potential round lot reassignment.’’ 854 The Commission also stated that market participants are accustomed to monthly updates, so monitoring for round lot size changes and implementing systems changes to account for the monthly calculation ‘‘would not be overly burdensome or costly.’’ 855 In light of the concerns raised by commenters about potential confusion and potential operational risks due to the fact that round lots and minimum pricing increments would be changed at different times, the Commission reviewed data that compared how often round lot sizes would change if subject to monthly evaluations, as the MDI Rules previously required, to how often they would change if subject to a semiannual evaluation based on one month of prices.856 The Commission examined the average closing prices of NMS stocks from January 2019 through September 2023 (6,052 stocks) using

857The Commission’s analysis revealed that certain NMS stocks shifted above and below the $250 per share threshold, which resulted in the difference in number of changes between the monthly round lot updates and the semiannual round lot updates. For example, one NMS stock would have changed round lot size 24 times over five years if round lot sizes were adjusted monthly, as compared to four times if round lot sizes were adjusted semiannually. 858See MDI Adopting Release, supra note 10, at 18619. 859See infra section VI.C. 860The MDI Rules adopted the definition of odd￾lot information in rule 600(b)(59). This provision was subsequently renumbered to Rule 600(b)(69) by the Rule 605 Amendments. 17 CFR 242.600(b)(69); Rule 605 Amendments, supra note 10. 861Pursuant to the implementation period for the MDI Rules, odd-lot information will be collected, consolidated, and disseminated by competing consolidators, beginning during the parallel operation period. See Proposing Release, supra note 11, at 80298. 862See proposed Rule 603(b)(3). While the MDI Rules do not require competing consolidators to disseminate all consolidated market data elements, such as odd-lot information, in consolidated market data products, the Commission proposed to require the exclusive SIPs to collect, consolidate, and disseminate odd-lot information. Under the decentralized consolidation model, competing consolidators will be permitted to design consolidated market data products with different elements of consolidated market data for their subscribers and subscribers will be able to choose competing consolidators and consolidated market data products that meet their needs. See MDI Adopting Release, supra note 10, at 18659. Under the existing exclusive SIP model, the exclusive SIPs are the only source of consolidated NMS information and—while proprietary data products offer some of the same data content, including odd￾lot quotations—subscribers would have no alternative providers of consolidated NMS information if such data were not required to be collected, consolidated, and disseminated by the exclusive SIPs. Therefore, the Commission proposed that the exclusive SIPs be required to disseminate odd-lot information. 863 17 CFR 242.614(e). See also MDI Adopting Release, supra note 10, at 18700 n.1355. Bloomberg data. During this time, only 323 NMS stocks moved above or below the round lot tiers of $250.01 per share, $1,000.01 per share, and $10,000.01 per share. If round lot sizes were updated on a monthly basis, there would have been 1,012 total changes over the past five years, for an average of 17 changes per month. If round lot sizes were updated every six months, there would have been 454 total changes over the past five years, for an average of 50 changes every six months.857 The data suggests that lengthening the time between assigning round lots will reduce the number of re-assignments. Some of the re-assignments identified using the monthly reassignment were the result
of some NMS stocks shifting between round lots sizes from month to month. The shifting of round lot size tiers from month to month may increase the potential for investor confusion. This is similar to the concerns expressed by commenters about having asynchronous round lot and minimum pricing increments changes. Finally, the Commission is amending Rule 600(b)(93)(v), which previously stated that a round lot for an NMS stock for which the prior calendar month’s average closing price is not available is an order for the purchase or sale of 100 shares. This preexisting provision assigned new NMS stocks to a 100-share round lot because such NMS stocks that started trading intra-month did not have an average closing price from the prior calendar month upon which to make a round lot assignment.858 As amended, preexisting section (v) will be renumbered as Rule 600(b)(93)(ii) and will be amended to state instead that any security that becomes an NMS stock during an operative period as described under new paragraph (iv) shall be assigned a round lot of 100 shares. This provision is consistent with the preexisting provision. New NMS stocks that begin trading during an operative period will not be able to have an average closing price calculated during an Evaluation Period. Further, this new language will make the round lot definition similar to Rule 612 in identifying those NMS stocks that become NMS stocks during an operative period and have not yet been an NMS stock during an Evaluation Period.
C. Final Rule—Odd-Lot Information
The Commission is adopting an accelerated implementation schedule for odd-lot information definition that is modified from the proposal in order to provide a longer time for market participants to update and modify their systems.859 Further, the Commission is adopting amendments to Rule 603(b) under Regulation NMS, as proposed, to require the exclusive SIPs to collect, consolidate and disseminate odd-lot information. Finally, the Commission is adopting amendments to the definition of odd-lot information to include the best odd-lot order, as proposed.

1. Proposed Acceleration of Odd-Lot
   Information Definition
   The Commission proposed to accelerate the implementation of the odd-lot information definition under Rule 600(b)(59) 860 by requiring SROs to provide the data necessary to generate odd-lot information to the exclusive SIPs and to require the exclusive SIPs to collect, consolidate, and disseminate odd-lot information.861 Specifically, the Commission proposed to amend Rule 603(b) under Regulation NMS to require the national securities exchanges and national securities associations to make all data necessary to generate odd-lot information available to the exclusive SIPs and to require the exclusive SIPs to collect, consolidate, and disseminate odd-lot information.862 The Commission proposed to divide Rule 603(b) into three new subsections to reflect the requirements under Rule 603(b) until the MDI Rules are implemented. As proposed, Rule 603(b)(1) governs the applicability of Rules 603(b)(2) and (b)(3) by describing the compliance dates set forth in the MDI Rules. Proposed Rule 603(b)(2) governs the provision of consolidated market data by competing consolidators and self-aggregators pursuant to the decentralized consolidation model set forth in the MDI Rules. Proposed Rule 603(b)(3) governs the provision of NMS information by the exclusive SIPs, including the new requirements regarding the collection, consolidation, and dissemination of odd-lot information. Therefore, proposed Rule 603(b)(1)(i) states that compliance with Rule 603(b)(3) is required until the date indicated by the Commission in any order approving amendments to the effective national market system plan(s) to effectuate a cessation of the operations of the plan processors that disseminate consolidated information regarding NMS stocks. Proposed Rule 603(b)(1)(ii) states that compliance with proposed Rule 603(b)(2) is required 180 calendar days from the date of the Commission’s approval of the amendments to the effective national market system plan(s) required under rule 614(e).863 Preexisting Rule 603(b), which imposes requirements on the dissemination of consolidated market data by national securities exchanges and national securities associations, was proposed to be renumbered as Rule 603(b)(2). Proposed Rule 603(b)(3) requires every national securities exchange on which an NMS stock is traded and national securities association to act jointly pursuant to one or more effective NMS plans to disseminate consolidated information, including a national best bid and national best offer and odd-lot information, on quotations for and transactions in NMS stocks, and the effective plan or plans must provide for the dissemination of all consolidated information for an individual NMS stock through a single plan processor. The single plan processor must represent quotation sizes in such consolidated information in terms of the number of shares, rounded down to the nearest multiple of a round lot.

864See infra section V.C.1.a; section V.D. 865The Commission also received comment on the timing proposed to implement the odd-lot information and round lot definitions. These comments are discussed below in section VI.C. 866See, e.g., Form Letter Type I, of which 22 comments were received, available at https:// www.sec.gov/comments/s7-30-22/s73022.htm. See also e.g., Form Letter Type D, of which 255 comments were received, Form Letter Type J, of which 15 comments were received, and Form Letter Type K, of which 22 comments were received, available at https://www.sec.gov/comments/s7-30- 22/s73022.htm; Letters from Aric Ott (Mar. 6, 2023); Austin Peck (Mar. 31, 2023); Colin Clarry (Mar. 6, 2023); Aron Tastensen (Feb. 23, 2023); Dave and Paula Wager (Mar. 6, 2023); Mark Rogers (Mar. 30, 2023); Erik Jansen (Mar. 31, 2023). 867See, e.g., Cboe Letter II at 10 (stating that odd￾lot transactions represent a majority of trades, odd￾lot quotations represent significant price improvement on Cboe’s exchanges and stating ‘‘the inclusion of odd-lot quotations on the SIPs is long overdue’’); IEX Letter I at 6; Nasdaq Letter I at 3, 10; MFA Letter at 13–14; Better Markets Letter I at 16–17; NYSE Letter I at 7; Cboe Letter II at 2; SIFMA AMG Letter I at 9; JPMorgan Letter at 2; Letter from Tom Davin, Senior Vice President, Software & Information Industry Association, Managing Director, Financial Information Services Division, Financial Information Services Division of the Software & Information Industry Association, dated Mar. 29, 2023 (‘‘FISD Letter’’) at 1, 3. 868See, e.g., Robinhood Letter at 5; Proof Letter at 1. 869See, e.g., FIA PTG Letter II at 4; Hudson River Letter at 2; NYSE, Schwab, and Citadel Letter at 2; STA Letter at 8; Schwab Letter II at 6; BlackRock Letter at 12; MEMX Letter at 7. 870Nasdaq Letter I at 3, 10. 871See FIA PTG Letter II at 4; Hudson River Letter at 2. 872See, e.g., NYSE, Schwab, and Citadel Letter at 2; STA Letter at 8; Schwab Letter II at 6. 873See, e.g., ICI Letter I at 2, 7; FIA PTG Letter II at 4–5; Robinhood Letter at 5, 44. See also supra
section I.D (discussing overarching comments on
the proposal in general).
874See Proposing Release, supra note 11, at 80295. 875As discussed below, the Commission is adopting an accelerated implementation schedule for the odd-lot information definition that is modified from the proposal in order to provide a longer period of time for market participants to update and modify their systems. See infra section VI.C. 876See infra section V.E. 877See, e.g., FIF Letter at 13; FIA PTG Letter II at 5; Fidelity Letter at 17; FISD Letter at 3. 878See Fidelity Letter at 17. 879See id. Additionally, every national securities exchange on which an NMS stock is traded and national securities association shall make available to a plan processor all data necessary to generate odd-lot information. The Commission did not receive any comments on proposed Rule 603(b)(1), which added the compliance dates already adopted in the MDI Rules, or the renumbering of current Rule 603(b) as Rule 603(b)(2), and is adopting these changes, as proposed. The Commission discusses proposed Rule 603(b)(3) 864 herein, which the Commission is adopting as proposed. a. General Comments and Response The Commission received comments in support of the proposed acceleration of the implementation of the odd-lot information consistent with the MDI Rules from individuals, firms, exchanges, and associations.865 Generally, individual commenters supported the proposed acceleration of the implementation of the odd-lot information definition because it would increase transparency and ‘‘because odd-lots represent the majority of trades.’’ 866 Certain other market participants also supported the proposed acceleration of the odd-lot information definition for similar reasons, stating greater transparency would enhance price discovery, improve decision-making with respect to order routing, and reduce spreads.867 Commenters further supported the acceleration of odd-lot information requirements because it would improve the quality of SIP data and ‘‘make more data accessible to investors at lower prices by introducing competition into an otherwise monopolistic data market.’’ 868 Certain market participants stated that accelerating the implementation of odd￾lot information is not necessary and overly burdensome given the other components of the proposal.869 One commenter supported the acceleration of the MDI Rules with respect to odd￾lots but stated that ‘‘[o]ver the long run, eliminating round lots altogether . . . may be a better resolution.’’ 870 In contrast, two commenters opposed accelerating the implementation of the odd-lot information definition, stating that it would increase the amount of development work required of market participants and therefore ‘‘delay the additional transparency that could be afforded by solely modifying the round lot definition.’’ 871 Additional commenters supported acceleration of the revised round lot definition but not the odd-lot information definition, without providing a specific reason for the distinction, and generally urged the Commission
to revisit comments on odd-lot dissemination.872 The Commission is adopting proposed Rule 603(b)(3) with respect to the provision of odd-lot information, as proposed. The provision of odd-lot information within the national market system will provide significant benefits to investors by increasing transparency about better priced orders that are available in the market. The round lot definition will not provide transparency about those orders that remain odd-lots, i.e., odd-lot quotation information. As discussed above, only those NMS stocks that are priced greater than $250 will be assigned a smaller round lot size. These NMS stocks may still have odd-lots available at prices better than the round lot price. Further, the odd-lot information definition will provide transparency about better priced odd-lot orders for all NMS stocks. While some commenters suggested that the Commission consider alternative sequencing of the proposal and expressed concern regarding the acceleration of the implementation of the odd-lot information definition: (1) ahead of other elements of MDI Rules, (2) simultaneously with minimum pricing increments, and (3) simultaneously with the changes to the round lot definition,873 investors and market participants should be provided with the benefits of odd-lot information sooner than the originally adopted implementation schedule in the MDI Adopting Release,874 and the adoption of the acceleration of the odd-lot information requirements should occur contemporaneously with adoption of the other requirements outlined in the Proposing Release. Timelier implementation of the odd-lot information definition allows investors to benefit from greater transparency and accessibility of better priced orders and improved execution quality; waiting to implement the definition would delay these benefits for market participants.875 Further, the implementation of the MDI Rules continues, although on a delayed basis as compared to the adopted implementation schedule. The implementation of odd-lot information on an accelerated schedule will not impede the further implementation of the remaining MDI Rules.876 Apart from comments regarding sequencing, certain industry participants expressed concern that adding odd-lot information, including the BOLO, to the exclusive SIPs will increase message traffic and therefore increase costs.877 One commenter stated that the proposal would add odd-lot information to exclusive SIP data without disclosing how much the SROs would charge retail investors and broker-dealers for the new data fields.878 The commenter, while recommending that the Commission proceed with implementation of the MDI Rules and governance changes, stated that exclusive SIP data fees are ‘‘complex and often opaque’’ and that while SIP data costs are charged to retail customers on a per investor basis, the cost to produce SIP data does not scale on a per investor basis.879

880See Proposing Release, supra note 11, at 80279 (discussing the potential increased system traffic for the proposed minimum pricing increments). 881See Proposing Release, supra note 11, at 80297 (discussing a 2019 proposal by the CTA/CQ and UTP Plans to add odd-lot information to the exclusive SIPs). 882See infra section VI.C (revising the compliance timeframe from 90 days as proposed to 18 months from the effective date of the Adopting Release). 883See infra sections VII.D.5 and VIII; see also Proposing Release, supra note 11, at 80299, 80301. 884See MDI Adopting Release, supra note 10, at
18684. 885See MDI Adopting Release, supra note 10, at
18650, 18684. 886See MDI Adopting Release, supra note 10, at 18684 n.1158. 887See 17 CFR 242.608(b). See also Rescission of Effective-Upon-Filing Procedure for NMS Plan Fee Amendments and Modified Procedures for Proposed NMS Plans and Plan Amendments, Securities Exchange Act Release No. 89618 (Aug. 19, 2020), 85 FR 65470 (Oct. 15, 2020). 888See Proposing Release, supra note 11, at 80338 (discussing how expediting the inclusion of odd-lot data into the exclusive SIPs would impact competition among data providers). 889MEMX Letter at 7. 890See MDI Adopting Release, supra note 10, at 18653. 891Under rule 603(a), an SRO is prohibited from making its core data available to vendors on a more timely basis than it makes such data available to the exclusive SIPs. In the MDI Adopting Release, the Commission stated that rule 603(a) prohibits an SRO from making its NMS information available to any person on a more timely basis (i.e., by any time increment that could be measured by the SRO) than it makes such data available to the exclusive SIPs. See MDI Adopting Release, supra note 10, at 18656. 892See Schwab Letter II at 36. 893Odd-lot transaction information is currently collected, consolidated, and disseminated by the exclusive SIPs. See Securities Exchange Act Release Nos. 70793 (Oct. 31, 2013), 78 FR 66788 (Nov. 6,
2013) (order approving Amendment No. 30 to the
UTP Plan to require odd-lot transactions to be reported to the consolidated tape); 70794 (Oct. 31, 2013), 78 FR 66789 (Nov. 6, 2013) (order approving Eighteenth Substantive Amendment to the Second Restatement of the CTA Plan to require odd-lot transactions to be reported to consolidated tape). 894 17 CFR 242.600(b)(69); MDI Adopting Release, supra note 10, at 18613. 895See 17 CFR 242.600(b)(60) (defining NBBO and setting forth the manner in which the NBBO While the addition of odd-lot quotation information to the exclusive SIPs will increase the number of messages that the exclusive SIPs will have to collect and consolidate and the number of messages that will be made available to market participants, the exclusive SIPs and market participants can handle such increased message traffic. As discussed in the Proposing Release, the systems used by exchanges and other market participants can handle many levels of data messages at extreme low latency and should be able to adjust to the addition of odd-lot quotation information.880 Further, the exclusive SIPs have been discussing the addition of odd-lot quotation information to SIP data for several years 881 and should be able to make the necessary adjustments to their processors in the adopted timeframe.882 To the extent that increased message traffic increases costs for the exclusive SIPs, the Commission estimated those costs in the Proposing Release, which are discussed below.883 The Commission discussed the potential for new fees related to consolidated market data, which includes odd-lot information, in the MDI Adopting Release.884 Fees imposed by the exclusive SIPs are subject to the Exchange Act and the rules thereunder. The Commission discussed the statutory standards for any potential fees for consolidated market data, which includes odd-lot information, in the MDI Adopting Release.885 Specifically, the statutory standards that apply to fees proposed by the effective market system plan(s) include section 11A(c)(1)(C)–(D) of the Exchange Act and rule 603(a) under Regulation NMS. Proposed fees must be fair and reasonable and not unreasonably discriminatory. As discussed in the MDI Adopting Release, the Commission has historically assessed fees for data, such as the data content underlying consolidated market data of which odd-lot information is a
part, using a reasonably related to cost
standard.886 To the extent that the exclusive SIPs propose to increase SIP data fees because of the addition of odd￾lot information, any such new proposed fees must be filed with the Commission pursuant to rule 608, published for public comment and approved by the Commission before they can take effect.887 Further, as discussed in the Proposing Release, expediting the inclusion of odd-lot information to the exclusive SIPs can provide additional competition to the segment of the market that subscribes to proprietary data with odd-lot information for use in visual display settings.888 One commenter requested confirmation that exchange proprietary data feeds could be used to provide odd￾lot information to the exclusive SIPs consistent with statements in the MDI Adopting Release that odd-lot information could be made available to competing consolidators and self￾aggregators (under the decentralized consolidation model) using ‘‘existing proprietary data feeds, a combination of proprietary data feeds, or a newly developed consolidated market data feed.’’ 889 As previously stated by the Commission, the use of proprietary data feeds for delivering odd-lot information is consistent with the MDI Rules in the context of the decentralized consolidation model.890 The use of proprietary data feeds for purposes of providing data to the exclusive SIPs may require consideration by the exclusive SIPs and the Operating Committees of the technical specifications that may be necessary for purposes of collecting and distributing such information to the exclusive SIPs.891 One commenter stated that ‘‘disseminating odd lot quotes on the SIP could lead investors to expect prices that are not available.’’ 892 Odd-lot quotation information will reflect actual prices of actual orders that have been submitted by market participants. This information will provide investors with valuable information about the prices at which other market participants are willing to trade. However, as with any change, market participants may have to educate investors as to the existence of odd-lot quotation information on the exclusive SIPs.
2. Proposed Amendment to Odd-Lot
Information Definition for Best Odd-Lot Orders The odd-lot information definition includes (1) odd-lot transactions,893 and (2) odd-lots at a price greater than or equal to the national best bid and less than or equal to the national best offer, aggregated at each price level at each national securities exchange and national securities association.894 Accordingly, once implemented, information on odd-lot orders priced better than the NBBO will be included in the NMS information that is made available to market participants within the national market system. The Commission proposed to amend the definition of odd-lot information to include a BOLO as new Rule 600(b)(59)(iii). Specifically, for each NMS stock, the best odd-lot order to buy would mean the highest priced odd-lot order to buy that is priced higher than the national best bid, and the best odd￾lot order to sell would mean the lowest priced odd-lot order to sell that is priced lower than the national best offer. Similar to the definition of the NBBO, in the event that two or more national securities exchanges or associations provide odd-lot orders at the same price, the exclusive SIPs, competing consolidators and self-aggregators would be required to determine the best odd-lot order by ranking all such identical odd-lot buy orders or odd-lot sell orders (as the case may be) first by size (giving the highest ranking to the odd-lot buy order or odd-lot sell order associated with the largest size), and then by time (giving the highest ranking to the odd-lot buy order or odd-lot sell order received first in time).895

is determined ‘‘in the event two or more market centers transmit to the plan processor, a competing consolidator or a self-aggregator identical bids or offers for an NMS security’’). 896See, e.g., Comment Letter Type D; Letters from Aron Tastensen (Feb. 23, 2023); Bill Goerger (Mar. 19, 2023); Carson Bruenderman (Mar. 7, 2023). 897See, e.g., IEX Letter I at 6; Cboe, State Street, et al. Letter at 2; ASA Letter at 5; SIFMA Letter II at 4, 32; BlackRock Letter at 12. The Commission also received a comment that said that the Commission should not amend rule 603(c) to require the display of odd-lot information, but did not discuss the costs (or benefits) of such a requirement. See FIF Letter at 13. The Commission is not amending rule 603(c) in this release. 898See, e.g., Comment Letter Type D, I, and K, available at https://www.sec.gov/comments/s7-30- 22/s73022.htm; see supra notes 866 and 896. 899See, e.g., IEX Letter I at 30–31; ICI Letter I at 6; Cboe Letter II at 10; BlackRock Letter at 12. 900See, e.g., ASA Letter at 5; Fidelity Letter at 16; SIFMA Letter II at 4, 32. 901SIFMA Letter II at 34, 43. 902See, e.g., Comment Letter Type D, I and K; Letters from Chris Eastvedt (Mar. 6, 2023); M B (Mar. 6, 2023); Prakash Tamang (Mar. 6, 2023); Adam Aiello (Mar. 7, 2023); Shayne Gallagher (Mar. 7, 2023); Aswin Joy (Mar. 7, 2023); Daryll Fogal (Mar. 15, 2023); Bill Goerger (Mar. 19, 2023); Allie Birge (Mar. 31, 2023); Eileen Loh (Mar. 19, 2023). 903See, e.g., Data Boiler Letter II at 3; JPMorgan Letter at 2, 7. 904See JPMorgan Letter at 7 (stating further if the protected price is lower than the BOLO then ‘‘Rule 605 could show misleading negative price improvement while ignoring the order’s size’’); Fidelity Letter at 16; SIFMA Letter II at 43. 905 JPMorgan Letter at 7. 906Fidelity Letter at 16 (supporting ‘‘adding better-priced odd lots to the SIP when this information provides actionable information to the marketplace, such as helping broker-dealers meet their best execution obligations’’ but urging the Commission to ‘‘balance the advantages and disadvantages of odd-lot transparency,’’ such as the ability to influence execution quality statistics). 907The Commission is adopting this amendment to the definition of odd-lot information in Rule 600(b)(69)(iii). See supra note 860. 908See 17 CFR 242.600(b)(14) (defining best available displayed price) and 17 CFR 242.605(a)(1)(ii)(M) through (Q) (requiring rule 605 statistics relative to the best available displayed price). Entities that prepare rule 605 reports will be required to use the BOLO to compare the best available odd-lot price to the NBBO and determine the best available displayed price. In some cases, the best available displayed price may be the NBBO. 909See Rule 605 Amendments, supra note 10. 910See Rule 605 Amendments, supra note 10. 911See supra note 902. 912See, e.g., NYSE Rule 7.36(b)(3); Nasdaq Equity 4, Rule 4756(c)(2); Cboe BZX Rule 11.9(c)(2). See also supra note 732. 913 17 CFR
242.600(b)(16) (defining ‘‘bid or offer’’ to mean ‘‘the bid price or the offer price communicated by a member of a national securities exchange or member of a national securities association to any broker or dealer, or to any customer, at which it is willing to buy or sell one or more round lots of an NMS security, as either principal or agent, but shall not include indications of interest.’’). 914See supra section V.B.1. a. General Comments and Response The Commission received comments supporting the requirement to identify the BOLO from individuals 896 and market participants.897 As stated above, many individual commenters supported publishing odd-lot information, including the BOLO, in the exclusive SIPs in order to further transparency and aid investors in making more informed trading decisions.898 Similarly, certain other commenters viewed the additional information as a useful measure for all investors and their agents to better evaluate the best prices in NMS stocks and would enhance the ability to trade and route orders effectively as well as facilitate best execution.899 Certain market participants that support the publication of the BOLO cautioned against requiring broker-dealers to use the metric as a benchmark against execution quality.900 One of the commenters requested guidance regarding whether ‘‘market participants would be expected to clear the best odd-lot orders as part of ISO routing, notwithstanding that the odd￾lot orders are not protected quotations.’’ 901 Finally, a number of individual commenters that expressed support for including odd-lot information in the exclusive SIPs urged the Commission to include ‘‘odd-lot transactions’’ in the NBBO, citing the fact that odd-lot transactions are now a majority of the market and most prevalent among retail investors.902 The Commission also received comments opposing the requirement to identify the BOLO, stating the information would create ambiguity or investor confusion.903 Some of these commenters stated that confusion would arise from the fact that a customer would expect to receive the BOLO price even though it is not a protected quote.904 One commenter stated that the round lot and odd-lot requirements outlined in the MDI Adopting Release sufficiently provide increased transparency while minimizing confusion.905 One commenter stated that the transparency of odd-lot orders may be ‘‘gameable’’ such that a limit order to buy one share could change all execution quality benchmarks for brokers.906 As discussed below, the Commission is adopting the amendment to odd-lot information to include a BOLO, as proposed.907 While initially market participants may need to explain to their customers about the existence of the BOLO, this new data element is not expected to confuse investors. Investors are already able to see odd-lot transaction information and, upon implementation, the BOLO will provide them with information about the best odd-lot quotations. The BOLO is an informative, useful
piece of information for investors to use when considering prices related to NMS stocks. Among other uses, the BOLO may serve as the benchmark execution price for execution quality statistics in rule 605 reports that measure price improvement relative to the best available displayed price.908 However, in rule 605 reports, the price improvement statistics relative to the best available displayed price will be a supplement to, rather than a replacement for, price improvement statistics relative to the NBBO.909 Further, rule 605 reports present information, including price improvement, in order size categories based on notional order size and whether the order is for a fractional share, odd-lot, or round lot.910 These provisions provide more context for price improvement statistics that consider the best available odd-lot price and thus mitigate concerns about ‘‘gaming’’ execution quality reports. Further, rule 605 reports represent monthly, aggregated execution quality statistics and thereby dilute the effect of an odd-lot price at one specific point in time. Several commenters stated that odd￾lot quotations should be included in the NBBO.911 Odd-lot quotations are currently included in the calculation of the NBBO when they are aggregated into round lots for purposes of providing an exchange’s best bids and offers to the exclusive SIPs.912 Pursuant to Regulation NMS, bids and offers can only be in round lot sizes,913 therefore, the NBBO can only be reflected in round lot sizes. The round lot definition as adopted in the MDI Rules, will categorize certain orders that are currently odd-lots as round lots based on their price, and as a result, quotations and orders that were previously defined as odd-lots will be eligible to establish the NBBO.914 Orders that remain odd-lots under the new definitions are not bids and offers and therefore do not independently contribute to establishing the NBBO. The identification of a BOLO will assist investors in assessing the current state of the market for individual NMS securities. The BOLO will reflect the best odd-lot price consolidated across all national securities exchanges and national securities associations and is therefore consistent with the goals set forth in section 11A of the Exchange Act because it will make information about quotations in NMS stocks available to broker-dealers and investors and will enhance the usefulness of odd-lot information. Although odd-lot liquidity better than the NBBO often resides at multiple price levels and information

915See supra note 901.
916See MDI Adopting Release, supra note 10, at 18605 for a discussion of the implications of expanded consolidated market data on the duty of best execution. 917 Id. at 18605–06. Consolidated market data products will be developed by competing consolidators once the decentralized consolidation model is implemented. See rule 600(b)(25), 17 CFR 242.600(b)(25) (defining consolidated market data product). 918Under the MDI Rules, the definition of ‘‘core data’’ requires competing consolidators to represent certain core data elements, including the best bid and best offer, the NBBO, and protected quotations in terms of the number of shares, rounded down to the nearest multiple of a round lot. 17 CFR 242.600(b)(26)(iii). See also 17 CFR 242.600(b)(26) (defining ‘‘core data’’). The MDI Rules adopted the definition of ‘‘core data’’ in rule 600(b)(21). This provision was subsequently renumbered to rule 600(b)(26) by the Rule 605 Amendments. See Rule 605 Amendments, supra note 10. 919See MDI Adopting Release, supra note 10, at
18615. Through the definition of ‘‘odd-lot
information,’’ the MDI Rules also require odd-lots priced at or better than the NBBO to be represented in the aggregate at each price level at each national securities exchange or national securities association rather than on an order-by-order basis. 17 CFR 242.600(b)(69)(ii). See also 17 CFR 242.600(b)(26)(i)(H) (including ‘‘odd-lot information’’ as an element of core data). The MDI Adopting Release explained that ‘‘[a]ggregating better-priced odd-lots at each price level at each exchange . . . . means that better-priced odd-lot orders will be represented in core data in terms of the total number of shares available at each price level at each exchange rather than on an order-by￾order basis. For example, if the NBB for XYZ, Inc. is 100 shares at $25.00, and there are three orders of five shares and two orders of ten shares at $25.01 on Exchange A, a competing consolidator’s core data product would show 35 shares at $25.01 on Exchange A.’’ MDI Adopting Release, supra note 10, at 18613 n.199. Therefore, quotations for odd-lot orders priced better than the NBBO are required to be displayed as the number of shares available in an odd-lot size that are aggregated at the same price. 920See FIF Letter at 13; SIFMA Letter II at 34, 42. 921See FIF Letter at 13. 922See SIFMA Letter II at 42. 923See SIFMA Letter II at 34. 924See MDI Adopting Release, supra note 10, at 18615. 925See FIF Letter at 13. 926See amended Rule 603(b)(3). 927 17 CFR 242.600(b)(69)(ii). See also supra note 919. 928See SIFMA Letter II at 42. 929See MDI Adopting Release, supra note 10, at 18615. 930See MDI Adopting Release, supra note 10, at 18600. 931See MDI Adopting Release, supra note 10, at 18601. 932See MDI Adopting Release, supra note 10, at 18601, 18607. reflecting all of these odd-lot prices is already included in the definition of odd-lot information, requiring the identification and dissemination of the best of all such inside the NBBO odd￾lots on both the buy and sell side will help inform market participants of the best possible prices at which their orders (or their customers’ orders) could—in whole or in part—be executed. The identification and dissemination of the price, size, and market of the best odd-lot orders will also enhance the ability of market participants to make effective trading and order routing decisions using NMS information and facilitate best execution. One commenter requested guidance on how to treat odd-lot orders for order routing purposes.915 The Commission stated in the MDI Adopting Release that odd-lot information may be relevant to a broker-dealer’s ability to analyze and achieve best execution.916 As the Commission stated in the MDI Adopting Release, while odd-lot information, which will now include the BOLO, ‘‘may be relevant to broker￾dealers’ best execution analyses and, in many cases, will facilitate the ability of broker-dealers to achieve best execution for their customer orders, the Commission . . . is not setting forth minimum data
elements needed to achieve best execution and does not expect that all market participants will need to purchase the most comprehensive or fastest consolidated market data product available.’’ 917 D. Display of Round Lots and Odd-Lot Information Currently, the exclusive SIPs represent quotation sizes in SIP data in terms of number of round lots. For example, for an NMS stock for which a round lot is 100 shares, a bid for 200 shares of that stock would be represented as a bid for ‘‘2’’ in SIP data. Under the MDI Rules, competing consolidators are required to represent a round lot as the number of shares rounded down to the nearest multiple of a round lot.918 For example, a 275-share buy order at $25.00 for a stock with a 100-share round lot would be disseminated as ‘‘200.’’ 919 Accelerated implementation of the round lot definition will require the exclusive SIPs to revise their systems to reflect this change. Therefore, in proposed Rule 603(b)(3), the Commission proposed to require each exclusive SIP to, among other things, represent quotation sizes in consolidated information in terms of the number of shares, rounded down to the nearest multiple of a round lot.

1. Comments and Response
   The Commission received comments on the display requirement adopted as
   part of the MDI Rules.920 One
   commenter stated that, for mixed lot orders, the total number of shares—both the round lot and odd-lot portions— should be included as consolidated market data.921 Another commenter stated that, by requiring that the number of shares at each price level be displayed at the round lot level, the display requirement would make consolidated market data less useful and less competitive relative to exchange proprietary data feeds, which display the total number of shares at a price level.922 The commenter also stated that basing quotations on the number of shares rounded to the nearest round lot (rather than based on round lots) could result in operational risk and investor confusion.923 As stated above, the display requirement was adopted as part of the MDI Rules. The Commission discussed the reasons for adopting the display requirement in the MDI Adopting Release.924 However, in response to the commenter that suggested the inclusion of both the round lot and odd-lot portions of mixed lot orders,925 since odd-lot information will be disseminated by the exclusive SIPs,926 the total number of shares of odd-lots priced at or better than the NBBO will be included in SIP data. Through the definition of odd-lot information, the MDI Rules require odd-lots priced at or better than the NBBO to be represented in the aggregate at each price level at each national securities exchange or national securities association rather than on an order-by-order basis.927 In response to the commenter that stated that displaying quotations in round lot sizes would undermine the usability and competitiveness of consolidated market data as compared to exchange proprietary data feeds,928 the Commission described the reason for displaying quotations in round lot sizes in the MDI Adopting Release, which remains relevant to the implementation of the round lot definition by the exclusive SIPs.929 Further, the Commission recognized in the MDI Adopting Release that different market participants need differing amounts of information to meet different trading objectives.930 The MDI Rules are intended to reduce information asymmetries between users of proprietary feeds and users of SIP data by enhancing the content of information made available in the national market system to enable market participants to trade efficiently and competitively.931 For example, the inclusion of odd-lot quotations and the round lot definition will allow investors to see, and more readily access, better priced orders in smaller sizes.932 As discussed above, the total number of shares of odd-lots priced at or better than the NBBO will be included in data that is made available by the exclusive SIPs. Certain market participants may choose to continue to purchase exchange proprietary data products if

933See SIFMA Letter II at 34. 934 17 CFR 242.600(b)(26)(iii). 935See MDI Adopting Release, supra note 10, at
18615. 936See MDI Adopting Release, supra note 10, at
18615 n.236. Rule 611 of Regulation NMS requires trading centers to have policies and procedures that are reasonably designed to prevent ‘‘trade￾throughs’’ on that trading center of protected quotes in NMS stocks, subject to specified exceptions. 17 CFR 242.611. Rule 611 currently only applies to round lots. Specifically, rule 611 applies to ‘‘protected quotations’’ which means ‘‘protected bid[s] or [ ]protected offer[s].’’ 17 CFR 242.600(b)(82). ‘‘Protected bid or protected offer,’’ as defined in rule 600(b)(81), refers to ‘‘a quotation,’’ defined in rule 600(b)(86), which in turn refers to ‘‘a bid or an offer,’’ defined in rule 600(b)(16), which, as noted above, only applies to round lots. See supra note 913 and accompanying text. 937See MDI Adopting Release, supra note 10, at 18615 n.236; see also supra note 919. 938See, e.g., Schwab Letter II at 36; FIA PTG Letter II at 5; Robinhood Letter at 46–47. 939See, e.g., JPMorgan Letter at 7; Citadel Letter I at 26; ICI Letter I at 2–3 n.8; Robinhood Letter at
5. See also Schwab Letter II at 36.
940See SIFMA Letter II at 44. This commenter and another commenter stated that the Commission has not taken action to ensure the implementation of the full set of MDI Rules since disapproving the proposed fees and proposed amendments to the current NMS plans for consolidated market data in
2022. Id.; SIFMA AMG Letter I at 9. See also
Fidelity Letter at 4; FIA PTG Letter II at 5. 941See, e.g., SIFMA Letter II at 44; Robinhood Letter at 5. 942See, e.g., Robinhood Letter at 5, 38, 41–42, 43, 47, 48, 49; JPMorgan Letter at 7; Citadel Letter I at 26. 943Robinhood Letter at 49. See also Robinhood Letter at 44, 46–49. See also infra section VII.C.3. 944See supra notes 73–76 and accompanying text. 945See supra note 78. 946Rule 614(e) of the MDI Rules requires that an amendment to the effective national market system plan(s) be filed with the Commission to conform such plan(s) to the decentralized consolidation model. 17 CFR 242.614(e). 947See, e.g., SIFMA Letter II at 44; Robinhood Letter at 5; see also Robinhood Letter at 42, 49. 948See Proposing Release, supra note 11, at 80296 n.359. 949See Proposing Release, supra note 11, at
80294. For more details, see MDI Proposing Release,
supra note 744, at 16743.
950See supra sections III.A, IV.C, and IV.E. 951See infra section VII.C.3. 952See, e.g., NYSE Letter I at 7–8; CTA, CQ, UTP Plans Operating Committees Letter at 3; FISD Letter at 2, 3, 4; Nasdaq Letter I at 3; Cboe Letter II at 11; FIF Letter at 14; Cboe Letter III at 10 n.18. 953 In addition, with respect to the compliance dates, several commenters requested the Continued they require more granular information about odd-lots. Here, the Commission’s amendment is limited in reach—it extends the MDI Rules’ display requirement to the exclusive SIPs as
part of the accelerated implementation
of the round lot and odd-lot information definitions, changing only the entity responsible for displaying this information—from competing consolidators to the exclusive SIPs. This change by itself should not impact the utility or competitiveness of consolidated market data. With respect to the commenter’s concerns that the display requirement would result in operational risk and investor confusion,933 the required display of mixed lot orders rounded down to the nearest multiple of a round lot was previously adopted in the MDI Rules for competing consolidators.934 In the MDI Adopting Release, the Commission stated that the preexisting convention of displaying the number of round lots ‘‘could be confusing’’ when applied to the MDI Rules’ round lot definition, which, once implemented, will assign varying round lot sizes to individual NMS stocks based on stock price.935 Further, the Commission explained that rounding down to the nearest round lot multiple would ensure that the elements of core data would reflect orders of meaningful size, and that for the NBBO, rounding down would help ensure that the protected portion of the order is clearly represented, to address concerns about impacts on investor confidence and investor confusion that potentially could result from the display of unprotected size at the NBBO.936 The Commission also stated that odd-lots priced at or better than the NBBO, including the odd-lot portion of a mixed lot order at the NBBO, will be included in core data.937 The Commission is extending this display requirement to exclusive SIPs as part of the accelerated implementation of the round lot and odd-lot information definitions. There should not be any new operational risks or investor confusion arising from this change because only the entity responsible for displaying the information is changing. The Commission is adopting Rule 603(b)(3) as proposed. E. MDI Rules Implementation Some commenters discussed the benefits of the MDI Rules 938 and expressed concern that the accelerated implementation of the round lot and odd-lot information definitions could indefinitely delay implementation of the remainder of the MDI Rules,939 stating that these proposed changes were not a substitute for implementation of all of the MDI Rules.940 Some commenters suggested that the changes proposed in the Regulation NMS Proposal should be postponed until the full implementation of the MDI Rules.941 Some commenters also raised concerns that the Commission was separately accelerating the implementation of the round lot and the odd-lot information definitions apart from the other components of the MDI Rules.942 One commenter stated that ‘‘full implementation of the MDI Rules’’ is ‘‘a necessary first step for any significant changes to market structure,’’ and whether or not fully implemented, ‘‘an indispensable component of the ‘baseline’ against which this proposal must be measured and justified.’’ 943 Despite delays in the process,944 the
implementation of the MDI Rules continues to be a Commission priority. In September 2023, the Commission issued an amended order directing the SROs to file a proposed new single national market system plan regarding consolidated equity market data.945 Consolidation of the multiple Equity Data Plans into a single, new equity data plan would modernize the governance of the existing Equity Data Plans.946 The Commission disagrees with comments that recommended delaying implementation of the Regulation NMS Proposal until the full implementation of the MDI Rules.947 Due to the delayed implementation of the MDI Rules, the Commission proposed to accelerate the implementation of the round lot and odd-lot definitions because these definitions can be efficiently implemented under the current exclusive SIP model.948 Not doing so would unnecessarily delay the benefits of the round lot and odd-lot information definitions to investors and market participants. One goal in adopting the round lot definition was to increase transparency about the better priced orders available in the market by allowing each exchange’s BBO and the NBBO for an NMS stock to be based upon smaller, potentially better priced orders, which will also improve market participants’ ability to access these orders.949 Waiting to implement the round lot definition would delay these benefits for market participants. Further, full implementation of the MDI Rules will not address the issues discussed above related to the minimum pricing increments for certain NMS stocks, the access fee caps for protected quotations and exchange fees.950 Finally, as discussed below, the eventual implementation of the MDI Rules is part of the baseline for the amendments to Rules 610 and 612.951
VI. Compliance Dates
The Commission proposed different compliance dates for the individual proposed rule amendments. As discussed below in the relevant sections, the Commission received several comments on the proposed compliance dates.952 The Commission is adopting compliance dates that are longer than proposed.953

Commission consider the interaction between the proposed rules and other recent Commission rules. In determining compliance dates, the Commission considers the benefits of the rules as well as the costs of delayed compliance dates and the potential overlapping compliance dates. For reasons discussed throughout the release, to the extent that there are costs from overlapping compliance dates, we expect the benefits of the rules to justify such costs. See infra section VII.D.6 for a discussion of the interactions of the final rules with certain other Commission rules. 954See FIF Letter at 2, 8. 955For a description of the move to decimalization, see Staff Decimalization Report, supra note 26. 956See Proposing Release, supra note 11, at
80284. 957See Proposing Release, supra note 11, at 80284
n.249. 958See supra section IV.D.1. 959See 15 U.S.C. 78s(b); 17 CFR 240.19b–4. Specifically, for the reasons discussed below, the amendments adopted herein will have the following compliance dates:
Rules 600(b)(89)(i)(F) and 612: The first business day of November 2025. Rules 600(b)(89)(iv), 600(b)(93) and 603(b)(3) (with respect to the requirement that the effective national market system plans to disseminate consolidated information shall provide for the dissemination of all consolidated information for an individual NMS stock through an exclusive SIP, and that the exclusive SIPs must represent quotation sizes in such consolidated information in terms of the number of shares, rounded down to the nearest multiple of a round lot): The first business day of November 2025. Rule 610: The first business day of November 2025. Rules 600(b)(69) and 603(b)(3) (with respect to the requirement that every national securities exchange on which an NMS stock is traded and national securities association must make available to the exclusive SIPs all data necessary to generate odd-lot information, and the collection, consolidation and dissemination of odd￾lot information by the exclusive SIPs):
The first business day of May 2026.
A. Final Rule 612 Compliance Date In the Proposing Release, the Commission detailed a staggered implementation period that would cover five quarters for the proposed amendments to Rule 612. The Commission proposed the implementation period to provide the market and market participants with time to implement the proposed variable minimum pricing increments as well as to facilitate an orderly transition. The adopted amendments to Rule 612 are modified from those that were proposed. Accordingly, the Commission is adopting a modified implementation
schedule and compliance date.
One commenter suggested that the Commission direct the SROs to develop a phased implementation schedule for the reduced minimum pricing increment, ‘‘[c]onsistent with the prior implementation of decimalization’’ and described several steps to be considered in an implementation plan.954 Because the amendments to Rule 612 have been modified to require the addition of only one minimum pricing increment, the compliance date discussed below will provide the SROs and other market participants sufficient time to implement the changes and a further phased implementation schedule is unnecessary. The move to decimalization in 2000–2001 was more complicated as it involved changes to SRO rules that specified several different increments that were fractions of a dollar and required systems changes to accommodate decimals instead of fractions.955 The amendment to Rule 612 will be less complicated because it will not require changes to SRO rules and the systems that are in place today, while needing updates, already can accommodate sub-penny increments. Further, the amendments adopted require less changes than what were proposed. The amendments to Rule 612 will require the primary listing exchanges to evaluate each NMS stock during an Evaluation Period to calculate their TWAQS and the primary listing exchanges will have to provide a minimum pricing increment indicator to the exclusive SIPs for dissemination. The Evaluation Periods will be conducted on a semiannual basis, rather than a quarterly basis as proposed. Further, the amendments will require market participants to update and modify their systems, such as order handling and processing systems, to accommodate the one new minimum pricing increment, rather than the three new minimum pricing increments that were proposed. Market participants’ systems will have to be updated and modified to accommodate the assignment of minimum pricing increments for quotes and orders priced $1.00 or greater to each NMS stock on a semiannual basis, rather than a quarterly basis as proposed. The systems updates necessary for implementing the amendment to Rule 612 are less burdensome than what was proposed. The Commission has considered the systems changes that will be necessary to implement the amendments to Rules 600(b)(89)(i)(F) and 612 and is assigning the compliance date for amended Rule 612 to be the first business day of November 2025. In determining this compliance date, the Commission considered the systems changes that must be completed and the date by which the TWAQS can be calculated during an Evaluation Period after the systems changes could be completed. This compliance date is sufficient for facilitating an orderly transition to the amended Rule 612. B. Final Rule 610 Compliance Date The Commission proposed that compliance with the amendments to Rule 610 would have occurred during the implementation period proposed for the amendments to Rule 612, discussed above.956 The proposed access fee caps would have also
had a staggered implementation to reflect the proposed implementation of the proposed minimum pricing increments. Specifically, compliance with the proposed 10 mils access fee cap would have been at the same as the proposed $0.005 minimum pricing increment, and compliance with the proposed 5 mils access fee cap would have been at the same time as the proposed $0.001 minimum pricing increment.957 As described above, the Commission has modified amendment to Rule 612 and has also modified the compliance date for the Rule 612 amendments. Further, the Commission has modified the amendment to Rule 610 such that the access fee cap structure is retained and only the level of the caps has been reduced. The Commission is reducing the access fee caps under Rule 610 to accommodate the new pricing increments as well as to address distortions in the market associated with fee and rebate models.958 Accordingly, the Commission is modifying the compliance date for the final Rule 610 amendments to coincide with the compliance date for Rule 612. The national securities exchanges will have to file proposed rule changes with the Commission pursuant to section 19(b) and rule 19b–4 959 to adjust their fee schedules to reflect the new lower access fee caps. Further, the national securities exchanges will have to file proposed rule changes to adjust any fee or rebate that is not determinable at the time of execution. The Commission is adopting a first business day of November 2025 compliance date for the amendments to Rule 610. This date provides the national securities exchanges with time to assess their fee schedules and file proposed rule changes pursuant to
section 19(b) and rule 19b–4 to adjust

960See supra note 719.
961See Proposing Release, supra note 11, at 80300; see id. at n.399 and accompanying text. 962See Proposing Release, supra note 11, at 80298. 963See, e.g., NYSE Letter I at 7–8; CTA, CQ, UTP Plans Operating Committees Letter at 3; MEMX Letter at 7; FISD Letter at 2, 3, 4; Nasdaq Letter I at 3; Cboe Letter II at 11; FIF Letter at 14; Cboe Letter III at 10 n.18. See also Fidelity Letter at 16. 964See, e.g., NYSE Letter I at 7–8; CTA, CQ, UTP Plans Operating Committees Letter at 2, 3; FISD Letter at 2, 3, 4; FIF Letter at 14; Cboe Letter II at 11. 965See FISD Letter at 3. 966 Id. 967See FISD Letter at 4. The commenter stated that the Operating Committees of the Equity Data Plans considered a 10–12 month implementation process in their proposal to add odd-lot data to the exclusive SIP feeds. Id. 968See BlackRock Letter at 12. See also MEMX Letter at 7. 969See NYSE Letter I at 8; CTA, CQ, UTP Plans Operating Committees Letter at 3; Nasdaq Letter I at 3. 970See NYSE Letter I at 7. 971See NYSE Letter I at 8. 972CTA/CQ/UTP Plans Operating Committees Letter at 2, 3. 973See Nasdaq Letter I at 3. 974Rule 600(b)(93). 975Rule 600(b)(89)(i)(E) and Rule 600(b)(89)(iv). 976 15 U.S.C. 78s(b). 977 17 CFR 240.19b–4. 978See Proposing Release, supra note 11, at 80300 n.408. 979Rule 600(b)(69). 980See supra notes 969 and 973 (suggesting an implementation process of approximately one year). their fee schedules in order to comply with Rule 610 as amended.
C. Final Compliance Date for Round Lot
and Odd-Lot Information
In the Proposing Release, the Commission proposed to require compliance with the odd-lot information and round lot definitions, including, as required under proposed Rule 603(b), that national securities exchanges and associations make the data available to the exclusive SIPs, that the exclusive SIPs represent quotation sizes in consolidated information in terms of the number of shares, rounded down to the nearest multiple of a round lot, and that the exclusive SIPs disseminate odd-lot information as defined in Rule 600(b)(69) 960 90 days from Federal Register publication of any Commission adoption of an earlier implementation of the round lot and odd-lot information definitions.961 The Commission explained that the proposed compliance date would significantly move up the date by which round lot and odd-lot information would be more widely available in the national market system.962 Several commenters raised concerns about the proposed compliance date, stating that 90 days was not enough time to implement the round lot and odd-lot information definitions.963 In stating that a longer timeframe was needed, some commenters stated their views of the challenges entailed in implementing the changes.964 One commenter stated, ‘‘[t]he technical and operational requirements to implement the definition changes will necessitate distinct product changes in the systems of literally hundreds of exchanges, vendors, and subscribers, each with different development priorities and system capabilities.’’ 965 The commenter stated that 90 days would not be enough time for the exclusive SIPs, data vendors and subscribers to accommodate the changes, and cautioned that ‘‘hastily made changes or missed delivery dates could result in not just a failure to provide odd-lot quotation data but also disrupt the flow of other core data to the market.’’ 966 The commenter urged the Commission not to adopt the 90-day compliance timeframe and instead, after adoption of the Proposing Release, allow time for industry consultation to develop an implementation plan.967 Two commenters, while supporting the odd-lot information definition adopted in the MDI Rules, recommended only implementing the BOLO due to the complexity and time it would take to implement the odd-lot information definition by many market participants.968 Three commenters suggested an implementation timeframe of at least one year.969 One commenter explained that the changes to the round lot definition would require programming changes by the exclusive SIPs and the market participants that receive SIP data, as well as testing of the changes at the exchanges, exclusive SIPs and customer levels,970 and that it would likely take longer than one year for the exclusive SIPs and exchanges to implement the proposed odd-lot changes.971 The Operating Committees for the Equity Data Plans stated that the implementation timeframe for the exclusive SIPs would likely extend beyond one year due to, among other things, ‘‘the time needed
for system design, [to] procure necessary equipment, and accommodate industry testing.’’ 972 Another commenter stated that the proposed 90-day timeframe was too aggressive, did not consider ‘‘technical realities,’’ and suggested an implementation period of at least one year.973 In light of the comments, the Commission is modifying the compliance date for the round lot and odd-lot information definitions. For implementation of the round lot definition 974 and the round lot indicator,975 the compliance date will be the first business day of November
2025. The Commission calculated this
deadline based on two main factors.
First, the compliance date is approximately 12 months after the effective date, which is consistent with what commenters suggested was necessary for systems changes and testing. Second, the compliance date provides sufficient time for any exchanges that have defined round lots in their rules to file proposed rule changes pursuant to section 19(b) of the Exchange Act 976 and rule 19b–4 977 thereunder to reflect the new round lot definition.978 The compliance date for the odd-lot information definition 979 and Rule 603(b)(3) (with respect to the requirement that every national securities exchange on which an NMS stock is traded and national securities association must make available to the exclusive SIPs all data necessary to generate odd-lot information, and the collection, consolidation and dissemination of odd-lot information by the exclusive SIPs) will be the first business day of May 2026, which is approximately 18 months after the effective date of the Adopting Release. The Commission is providing a modified compliance date for the odd￾lot information definition, consistent with what industry comment suggested was necessary for technical and operational requirements,980 due to several factors. First, the exclusive SIPs will likely have to make more changes to their systems to accommodate the odd-lot information definition than to implement the round lot definition. Specifically, the exclusive SIPs will need to collect more data, consolidate it, and disseminate it as odd-lot information. In addition, the exclusive SIPs will need to calculate and disseminate the BOLO. The Commission continues to believe that both the changes to the odd-lot information definition and the dissemination of the BOLO are independently important, and the additional time allotted to comply with the odd-lot information definition addresses the concerns from commenters regarding the complexity or operational risks that may arise with making odd-lot information changes in a compressed timeline. Second, the effective national market system plan(s) may also need to assess whether plan amendments will be necessary to conform such plans to the odd-lot information definition, and to file any such amendments with the Commission

981See Anthony Clarke, Demystifying the Central Limit Order Book (CLOB): Everything You Need to Know (Apr. 21, 2023), available at https:// www.nasdaq.com/articles/demystifying-the-central￾limit-order-book-clob-everything-you-need-to-know. 982See supra section I.A.1. 983See generally, Regulation NMS Adopting Release, supra note 4. 984Specifically, preexisting Rule 612 of Regulation NMS prohibited a national securities exchange, national securities association, ATS, vendor, or broker or dealer from displaying, ranking, or accepting quotations, orders, or indications of interest in any NMS stock priced in an increment smaller than $0.01 if the quotation, order, or indication of interest is priced equal to or greater than $1.00 per share. If the quotation, order, or indication of interest is priced less than $1.00 per share, the minimum pricing increment is $0.0001. 985See supra note 42 and accompanying text discussing and defining protected quotes. 986As discussed in sections VII.D.2, VII.D.3, and VII.E.1, fees and rebates create a potential conflict for a broker in situations where transaction fees, which are paid by the broker, potentially conflict with execution quality, which is incurred by the customer. This conflict, if acted on, can lead to inefficient order routing and worse transaction outcomes for customers; it can also lead to an inefficient incorporation of information into stock prices, harming market efficiency. 987Section 3(f) of the Exchange Act requires the Commission, whenever it engages in rulemaking and is required to consider or determine whether an action is necessary or appropriate in the public interest, to consider, in addition to the protection of investors, whether the action will promote efficiency, competition, and capital formation. Additionally, section 23(a)(2) of the Exchange Act requires the Commission, when making rules under the Exchange Act, to consider the impact such rules will have on competition. Exchange Act section 23(a)(2) prohibits the Commission from adopting any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. pursuant to rule 608. Finally, market participants may need to update their systems that accept SIP data to reflect odd-lot information. Accordingly, extending the compliance deadlines for the implementation of the round lot and odd-lot information definitions will address the concerns raised by commenters and provide additional time for market participants to make the changes necessary to implement the definitions.
VII. Economic Analysis
A. Introduction
The most common method of trading in NMS stocks by registered exchanges today is the limit order book matching system, a mechanism that securities exchanges use to bring together orders of multiple buyers and sellers of securities and have those orders interact. It acts as a central hub where participants’ priced buy and sell orders can be ranked, displayed, and matched based on programmed rules established by the providing registered exchange. As such, the limit order book matching system facilitates efficient and competitive markets.981 Imagine an order book in which a buyer’s or seller’s order could be displayed at any pricing increment, no matter how small. In this scenario, assume a liquidity provider wants to buy a stock. The provider sees the book with the prices at which others are willing to buy. Because in this hypothetical market there are no restrictions on an entry price point, the liquidity provider can jump ahead of those other providers by offering to buy at a price that is infinitesimally higher. This is what is known as ‘‘pennying.’’ 982 The problem with pennying is that it creates a disincentive for liquidity providers to post buy or sell orders, because they know that a second trader can step ahead with an infinitesimally better price. This leads to lower priced offers to buy and higher priced offers to sell—namely a wider quoted bid-ask spread. Recognizing this market failure, the Commission in 2005 adopted 983 a market-wide requirement that venues could not display, rank, or accept orders in increments less than a penny.984 The 2005 adoption of Rule 612 limited the scope of pennying, but it did so at the inevitable cost of introducing a floor, namely one cent, below which the quoted bid-ask spread could not fall. Though a minimum tick is necessary, placing a floor on the spread introduces distortions into the market. The price of liquidity will be artificially high for some stocks, leading to a surplus, similar to a goods market for which prices were artificially high. This creates rents which accrue to some market participants at the expense of others. By reducing the minimum pricing increment for a defined subset of stocks, the adopted amendments to Rule 612 free the price of liquidity from its current constraint, allowing it to approach its natural level. At the same time, as described in greater detail below, the adopted amendments maintain a minimum (but smaller) pricing increment necessary for the proper functioning of financial markets’ limit order books. Freeing the spread from the binding constraint of one penny will bring a number of benefits, including lower transaction costs. For some stocks currently constrained at a penny, the spread will, under the amended rules, at times be a half-penny, a substantial reduction in the quoted price of accessing liquidity. This reduction, while beneficial, brings into the spotlight the cap on the access fee, which has been 0.30 cents. Absent a reduction in the maximum access
fee, a round-trip buy and sell for stocks quoted at the new half-penny tick would require paying more in fees (0.60 cents) than in the spread itself (0.50 cents). The practice of charging at or near the access fee cap has persisted over time. Regulation NMS establishes the NBBO. Because the NBBO is protected,985 many exchanges charge the maximum amount allowed to access the quote. This allows the exchange to subsidize liquidity providers with a rebate, reducing spreads (to acquire more volume, due to traders’ need to access the protected quote). While the quoted spread may be lower, the cost to investors is not; this is because gains from the lower spread are counteracted by the access fee. On the other hand, the high access fee and rebate can lead to a loss of price coherence when the spread is less than twice the fee. For stocks that remain tick constrained, as some may, the rebate distorts the supply of liquidity. Finally, fees and rebates that are high as a percentage of the quoted spread introduce complexity, and potential conflicts of interest. Lowering the access fee to 10 mils restores price coherence and alleviates these costs. The Commission is also requiring that these fees and rebates be determinable at the time of trade execution. Opacity and complexities in current exchange fees and rebates make these more distortive than otherwise.986 With new Rule 610(d), the Commission is taking an incremental step in ameliorating the opacity in fees and rebates, reducing information asymmetries and lessening the potential for agency conflict between brokers and their customers. Finally, the Commission has accelerated the implementation of the round lot, and odd-lot information definitions while providing more time for the necessary systems changes to implement the definitional changes than what was proposed. These amendments will allow the benefits of these rules to accrue to market participants in a timely manner. Below, we explain why these amendments increase efficiency and competition and bring benefits that will accrue to the broad range of participants in U.S. equity markets. We also discuss the costs of these amendments. The Commission has considered the economic effects of the amendments and, wherever possible, the Commission has quantified the likely economic effects of the amendments.987 The Commission is providing both a qualitative assessment and quantified estimates of the potential economic

988 Investors can also execute trades on other ‘‘dark’’ venues that do not display quotes. But because quotes are not displayed on these venues, the investor could not be certain of the execution price or of the number of shares available. See Proposing Release, supra note 11, at 80287 (addressing trading centers that do not display protected quotes). 989Proposing Release, supra note 11, at 80309 n.483. See also Jonathan Brogaard & Corey Garriott, High-Frequency Trading Competition, 54 J. Fin. & Quantitative Analysis 1469 (2019) (documenting that as more high-frequency liquidity providers enter the market, spreads decrease until they converge to competitive levels). 990Although the Proposing Release did not use the phrase ‘‘economic spread,’’ the release employed the same concept in multiple places. See, e.g., Proposing Release, supra note 11, at 80317 (‘‘In a competitive market, and in the absence of rebates or other price distortions, the prevailing bid or ask price would be the feasible price equal to just worse than the price that equates liquidity supply and demand.’’). In a number of places where the release employed the concept of economic spread, it arose in discussions about a stock that would trade at a given price or spread absent the tick size. See Proposing Release, supra note 11, at 80304, 80309, and 80317. The spread is composed of several elements: adverse selection, inventory risk, and processing costs. See Proposing Release, supra note 11, at 80304 n.447 and 80321. See generally, Roger D. Huang & Hans R. Stoll, The Components of the Bid-Ask Spread: A General Approach, 10 Rev. Fin. Stud. 995 (Winter 1997). As explained in the Proposing Release, supra note 11, at 80304 and n.447, the spread is unlikely to ever be zero due to inventory costs, adverse selection risks, the direct costs associated with providing liquidity, and trading rules meant to prevent the locking and crossing of markets. See P.C. Kumar, Bid-Ask Spreads in U.S. Equity Markets, 43 Q. J. Bus. & Econ 85 (2004). 991As discussed in the Proposing Release, supra note 11, at 80309 nn.483–484 and accompanying text, this assumes that stock prices are expected to revert to the next worse level. This may occur because standard economic theory suggests that in a competitive market liquidity providers will compete to provide liquidity until the spread—i.e., their compensation for providing liquidity—is equal to the break-even point for liquidity provision. See also Jonathan Brogaard & Corey Garriott, High-Frequency Trading Competition, 54 J. Fin. & Quantitative Analysis 1469 (2019) (documenting that as more high-frequency liquidity providers enter the market, spreads decrease until they converge to competitive levels). The range of infeasible quoting prices narrows somewhat in the presence of rebates for liquidity providers. section VII.B.3 discusses these effects. 992Proposing Release, supra note 11, at 80305. 993 Id., at 80305 n.481 and accompanying text. 994 Id. at
80305–06. Pennying is defined in the Proposing Release as occurring when a market participant gets to the front of the limit order queue by posting economically trivial price improvement. Id. at 80306 n.459. One commenter also described the economics of pennying using option theory and the Commission agrees with this characterization. See Harris Letter at 6. According to the commenter, pennying results in a payoff structure that has unlimited potential upside while the downside is capped. By pennying, a fast trader jumps to the front of the queue and therefore has a high chance of executing his trade and capturing the upside if prices move favorably. If prices move in an unfavorable direction, the fast trader can unwind his position against the slower liquidity supplier (whom he undercut); in this case, the cost to the fast trader—i.e., the cost of the option—is only one tick. The fast trader thereby captures value from the liquidity supplier and hence discourages slow traders from offering liquidity. A small tick means that the cost of pennying is low, which results in more pennying and thus less incentive for liquidity provision. See also Lawrence E. Harris, Minimum Price Variations, Discrete Bid–Ask Spreads, and Quotation Sizes, 7 Rev. Fin. Stud. 149 (1994); Anne Dyhrberg, et al., When Bigger is Better: The Impact of a Tiny Tick Size on Undercutting Behavior, 58 J. Fin. & Quantitative Analysis (2023) (Dyhrberg et al.). 995Proposing Release, supra note 11, at 80305 n.458. 996See infra section VII.D.1.b.i. 997The Commission’s definition of tick￾constrained in this release eliminates an unnecessary distinction drawn between tick￾constrained and near-tick-constrained stocks that appears in the Proposing Release. Specifically, in the Proposing Release’s economic analysis, the Commission stated that it considered the term ‘‘tick-constrained’’ to apply to ‘‘stocks that would Continued effects of the amendments where feasible. The Commission incorporated data and other information to assist it in the analysis of the economic effects of the amendments. However, as explained in more detail below, the Commission is unable to quantify certain economic effects because the Commission does not have, and in certain cases cannot reasonably obtain, data that may inform the Commission on certain economic effects. Further, even in cases where the Commission has data, it is not practicable to quantify certain economic effects due to the number and type of assumptions necessary, which render any such quantification unreliable. Our inability to quantify certain costs, benefits, and effects does not imply that such costs, benefits, or effects are less significant. B. Broad Economic Considerations

1. Liquidity and Spread
   A key component of market liquidity is the limit order book. Liquidity providers submit limit orders to buy (‘‘bid’’) and sell (‘‘ask’’) stock at specified prices and quantities. Liquidity demanders trade against these limit orders. The quoted (bid-ask) spread for a stock is the difference between the lowest displayed ask price and the highest displayed bid price.988 As discussed in the Proposing Release, standard economic theory suggests that liquidity providers in a competitive market will compete to provide liquidity until the spread—i.e., their compensation for providing liquidity— is equal to the break-even point given the costs of liquidity provision.989 Absent fees, rebates, and a minimum pricing increment, this break-even point for liquidity provision represents the lowest bid-ask spread at which liquidity providers (as a whole) are willing to provide liquidity (hereinafter ‘‘economic spread’’).990
2. Economics of Minimum Pricing
   Increments
   When a market has a minimum pricing increment (hereafter ‘‘tick sizes’’ or just ‘‘ticks’’), liquidity providers quote bid and ask prices that are discrete whole number multiples of that tick. For example, if the tick is a penny, then a liquidity provider quotes prices that are a multiple of a penny, such as $10.00 or $10.01, but not $10.015. There may, however, be a liquidity provider willing to quote an ask of $10.015 and a bid of $10.005. Were this liquidity provider to be allowed to do so, the stock would have a spread $0.01 (i.e., the difference between the lowest ask price and bid price). However, in the presence of the $0.01 tick, liquidity providers will quote at the best feasible ask price above $10.015, which is $10.02, and the best feasible bid price below $10.005, which is $10.00.991 Consequently, the stock’s quoted spread would be $0.02 instead of $0.01, twice as wide than it would otherwise be. Tick sizes present an economic tradeoff. As discussed in the Proposing Release, in determining what tick size is optimal for any given stock, there is a tradeoff between price competition on one hand, and incentives for liquidity provision on the other.992 A smaller tick allows liquidity providers to better compete on price which can lead to narrower spreads, reducing costs for investors. On the other hand, a smaller tick can also lead to pennying. Pennying increases adverse selection costs for slower liquidity providers by making it more likely that they trade when prices are moving in an unfavorable direction relative to their positions.993 To compensate for these costs, liquidity providers may post less aggressive quotes—lower bid prices and higher ask prices—resulting in a wider quoted spread and worse liquidity.994 Both price competition and adverse selection from pennying lie on a continuum.995 As explained in infra section VII.D.1, the degree to which pennying versus price competition dominates in determining whether increasing the tick will improve market quality depends on the relation between the tick and the spread. The greater the tick is in relation to the spread, the greater the effect of price competition, and the lower the risk of pennying.996 Accordingly, the Commission defines a stock to be tick￾constrained if there is a reasonable probability that the stock would otherwise trade with a spread less than the tick size in the course of normal trading, were it allowed to do so, or one for which the tick is a substantial portion of the quoted spread.997 That is,

otherwise trade with a spread less than the tick size, were they allowed to do so.’’ Proposing Release, supra note 11, at 80304. That economic analysis also stated that a ‘‘near-tick-constrained’’ stock was ‘‘one that has a reasonable probability of becoming tick-constrained in the course of normal trading, or one for which the tick is a substantial portion of the spread.’’ Id. Given the economics of minimum pricing increments discussed in this section, distinguishing near-tick-constrained stocks from tick-constrained stocks is unnecessary. The Proposing Release’s discussion of these terms in its economic analysis did not meaningfully differentiate between the effects on stocks in each of these groups. As a result, applying the singular term tick-constrained avoids confusion and streamlines the discussion. In addition, the Proposing Release’s empirical analysis employed separate numerical definitions for tick-constrained and near-tick-constrained stocks. Compare id. at 80268 n.17 (tick-constrained stocks are those with a Time Weighted Average Quoted Spread less than .011) with id. at 80304 n.449 (near-tick-constrained stocks are those with a Time Weighted Average Quoted Spread between .011 and .02). These numerical definitions served as proxies for drawing distinctions in the Proposing Releases’ empirical analysis. See, e.g., id. at 80304 nn.448–449; at 80308 n.473 and accompanying text; and at 80319 n.549. Although we continue to include specific explanations of what stocks are included in each of our quantitative analyses where relevant, to further simplify the discussion in the economic analysis, we do not use the definitions employed in the empirical analysis more broadly. 998See Proposing Release, supra note 11, at 80309 and the discussion accompanying nn.474–477. See also CCMR Letter at 18 (‘‘an MPI that is too wide may set an artificial constraint on permissible bids and offers, which can result in an unnecessarily wide spread that can also increase transaction costs for investors’’). 999Material presented in this paragraph was discussed in the Proposing Release, supra note 11, at 80309 and nn.478–481. 1000 ‘‘Crossing the spread’’ refers to switching from posting a (non-marketable) limit order to sending a market order. For example, if the national best bid were $10.00 and the national best offer were $10.02, a limit order to buy, if executed, would entail paying $10.00 for the security. However, a market order to buy would entail pay $10.02, in other words, it would have crossed the spread of $0.02. In the most common case of maker￾taker, the difference between the market and limit order is even greater because the buyer using a market order would pay $10.02 plus the fee, whereas the buyer using a limit order would pay $10.00 minus the rebate. 1001The liquidity provider could submit an order at an inverted exchange, though this is an inefficient solution. See section VII.C.2.c. 1002Under typical exchange rules, an order with time priority
is executed first when multiple orders are at the best price, regardless of how many orders are at the best price. In longer order queues, liquidity-providing orders deeper in the queue, which do not have time priority, are less likely to be filled in a timely manner and, conditional on being filled, the probability of the order having been adversely selected tends to be greater compared to orders with greater fill priority. Typically, liquidity providers compete to gain priority over other resting orders by quoting a better price, but tick￾constraints make doing so difficult. In the case when the spread is constrained to a single tick, it would be impossible to improve on the displayed price without locking markets. For tick-constrained stocks, when the quoted spread may be greater than a single tick, improving the price by an entire tick may be too much in the sense that doing so may narrow the spread beyond what the liquidity providers could tolerate. A narrower tick de￾emphasizes time priority on a stock exchange by making it easier to compete on price. See Edwin Hu, et al., Tick Size Pilot and Market Quality (DERA White Paper, Jan. 31, 2018), available at https:// www.sec.gov/dera/staff-papers/white-papers/dera_ wp_tick_size-market_quality; and Todd G. Griffith & Brian S. Roseman, Making Cents of Tick Sizes: The Effect of the 2016 U.S. SEC Tick Size Pilot on Limit Order Book Liquidity, 101 J. Banking Fin. 104 (2019). 1003Market participants can use inverted exchanges or ISOs to help ameliorate some of the negative effects of tick size constraints. 1004See, e.g., Barbara Rindi & Ingrid M. Werner, U.S. Tick Size Pilot (working paper Mar. 4, 2019), available at https://ssrn.com/abstract=3041644 (retrieved from SSRN Elsevier Database); Mao Ye & Chen Yao, Tick Size Constraints, Market Structure and Liquidity (working paper Dec. 26, 2019), available at https://ssrn.com/abstract=2359000 (retrieved from SSRN Elsevier database); Phil Mackintosh, Why Ticks Matter, NASDAQ (May 19, 2022), available at https://www.nasdaq.com/ articles/why-ticks-matter; and MEMX, Tick￾Constrained Securities (Aug. 2021) (‘‘MEMX Report’’), available at https://memx.com/wp￾content/uploads/MEMX-Market-Structure-Report￾Tick-Constrained-Securities.pdf. 1005This phenomenon is sometimes referred to as excessive intermediation. In this context, excessive intermediation refers to excessive quoting in sufficiently liquid securities in order to profit from the tick-constraint-induced price floor on liquidity, which crowds out investors from being able to supply liquidity. Such price floors can increase quoting activity from high-frequency traders looking to earn the artificially high spread. Because profiting off of the spread is easiest when the marketable orders filled are small, obtaining high priority in the queue at each tick is essential to such strategies. High-frequency, proprietary traders are generally better able to obtain such priority, and consequently investors may have
less opportunity to profitably fill their trades using limit orders. Rebates on limit orders further increase the incentives of these traders to engage in such intermediation, thereby exacerbating the problem. 1006 In support of this point, one commenter stated that the subsidization of liquidity providers resulting from the tick constraint leads to greater competition on the basis of speed to provide liquidity, which increases complexity and related costs to investors; See Budish Letter at 4. while tick constrained stocks are not the only ones to potentially benefit from a reduction in the tick size, they are the ones most clearly likely to do so.998 Benefits from a reduction in the tick size come in the form of higher market quality and lower transaction costs to investors. As explained above, relaxing the tick constraint (the price floor on liquidity) directly allows competition for market orders. Moving toward a more competitive market reduces distortions and economic rents. As a general matter, a liquidity provider is incentivized to get its quote to the front of the queue (i.e. establish price/time priority on an order book).999 This is because stock exchange priority rules give greater priority to better priced orders and generally factor order entry time into the priority of limit orders at the same price. When the NBBO is equal to the tick, liquidity providers cannot establish price priority (other than by crossing the spread) 1000 because there are no price points at which to do so.1001 Because liquidity providers cannot establish price priority when the NBBO spread is one tick, establishing time priority becomes more important.1002 Consequently, an environment where stocks are tick￾constrained with artificially wider spreads and longer order queues tends to favor traders who are better able to establish positions more quickly so they can be at the front of the queue. Traders who are at the back of the queue face slower executions and the risk of not being executed against at all (a lower fill rate). In the latter case, they will need to resubmit an order when the market has moved in an unfavorable direction, increasing transaction costs. Adverse selection amplifies these costs: the orders of slower traders are most likely to be executed when such an execution is unfavorable to them and least likely when they would be favorable. For example, a sell order at the back of the queue will tend to be filled when there are many buy orders, which tend to increase the price, implying that selling is disadvantageous. To summarize, current wider quoted spreads mean greater cost to liquidity demanders and greater revenue to liquidity providers.1003 An artificially wide spread, due to a price floor imposed by the tick constraint, effectively subsidizes liquidity provision. Because there is an increased incentive to provide liquidity via limit orders, queues of limit orders tend to be longer, and wait times to get a limit order executed also tend to
be longer. This makes it more likely that the market moves away from an investor’s limit order and leads to lower overall fill rates for limit orders.1004 Thus the floor on liquidity leads to rents accruing to fast liquidity providers 1005 at the expense of slower ones as well as liquidity demanders.1006
3. Economics of Access Fees
Trading venues can choose to charge an access fee, or pay a rebate, to their participants—liquidity providers and liquidity takers—who trade at their venue. The trading venue can further choose to levy the fee (or pay the rebate) on either the liquidity taker or liquidity provider, or on both. As discussed in infra section VII.C.2.b, the most common fee structure is maker-taker, in which liquidity takers are assessed an access fee and liquidity providers are paid a rebate, which is typically funded through the access fee. That is, for a buy order the liquidity taker pays the price plus the access fee. For a sell order, the liquidity taker receives the price, less

1007See Proposing Release, supra note 11, at 80348 (‘‘Net and nominal price rankings are coherent if sorting trading venues on the competitiveness of their nominal quoted prices yields the same ordering as sorting on prices net of fees and rebates.’’). 1008Proposing Release, supra note 11, at 80328. 1009 Id. 1010Specifically, commenters had different views on whether reducing access fees and rebates will adversely affect the provision of liquidity on exchanges, either generally or for particular categories of stocks. Compare Cboe Letter II at 9; Cboe Letter III at 6, 8; Cboe Letter IV at 3, 5; CCMR Letter at 27; IEX Letter I at 2; IEX Letter IV at 18, 21; IEX Letter V at 4; IEX Letter VI at 7; Nasdaq Letter I at 2, 20, 22, 25; Nasdaq Letter II at 3, 6; Nasdaq Letter III at 2–3; Themis Letter at 7–8; Virtu Letter II at 7–8. Commenters likewise had differing perspectives on whether reducing access fees and rebates will reduce overall transaction costs, thereby increasing demand for liquidity, or cause offsetting costs related to, e.g., wider spreads, volatility, or a less representative NBBO (which could reduce demand for liquidity). Compare Cboe Letter III at 5–6; Cboe Letter IV at 5; CCMR Letter at 27; IEX Letter I at 26; IEX Letter IV at 16, 22– 23; Nasdaq Letter I at 2, 20, 22–24; Nasdaq Letter II at 4–7; Nasdaq Letter III at 5; Themis Letter at 7; Virtu Letter II at 8. As one example of this debate, Nasdaq identifies a ‘‘vicious cycle’’ that could result from a reduction in the minimum access fee, whereas IEX identifies a ‘‘virtuous cycle’’ from the identical change. See Nasdaq Letter II at 6; IEX Letter I at 26. See section VII.D.2 for a response to these comments on the effect of the reduction in the access fee cap on liquidity and transaction costs. 1011The economic theory laid out below allows the Commission to create a common framework for the competing claims of commenters and to disentangle the complex forces at work in determining spreads. While the Commission has supplemented this discussion from the Proposing Release, the essential point in this framework—the equilibrium resulting from the supply and demand for liquidity, modified as necessary for the presence of a minimum tick—was discussed throughout the Proposing Release. See, e.g., Proposing Release, supra note 11, at 80228–29, 80317, 80321, 80336, 80338. 1012This model presents an abstraction of the market for liquidity. As explained in section VII.B.2, the willingness to quote a bid or offer depends in part on the degree of adverse selection in the market which in turn depends on the tick size. The key point in this section is that, for stocks that have a spread that is sufficiently wide, liquidity providers are indifferent between receiving compensation in the form of spread or in the form of a rebate; similarly, liquidity demanders are indifferent between paying the spread or access fee, and thus fees and rebates tend to be neutral assuming a spread that is sufficiently wide.
This point is unaffected by the presence of adverse selection arising from a tick that may be too narrow. 1013The price of liquidity is represented by the quoted half-spread because the half-spread represents the price which liquidity takers must pay for the immediacy of executing their trade while liquidity providers stand to capture the half-spread. 1014Figure 1 shows the supply and demand for liquidity, with the quoted half-spread as representing the price of liquidity on the y-axis. This should not be confused with supply and demand for shares of the stock, where the price of the stock would be on the y-axis. the fee. Assuming the broker-dealer is the principal to the trade, then the economic price of accessing or providing liquidity would be equivalent to the displayed nominal price net of the applicable fees. If the broker-dealer is an agent, then there maybe a wedge between economic price of accessing or providing liquidity and the price net of the fee and rebate. It is possible that the fee and rebate may be passed on directly to the customer. The fee and rebate may be passed on indirectly and in part through fees, commissions, or as part of a bundle of services to the customer.
Section VII.C.2 describes the current
market structure as it relates to access fees and rebates. A key feature of the current market structure is that many exchanges charge at the current cap and pay out nearly all of the fee as a rebate. For this reason, in practice the Commission expects access fees to be near the cap under the amended rule, just as they are near the pre-existing cap under the current structure. As discussed in the Proposing release, several basic economic considerations are among those governing the analysis of access fees. First, access fees should be such that net and quoted prices satisfy coherence.1007 Second, under simplifying assumptions, fees and rebates are approximately neutral provided that the stock is not tick constrained,1008 although outside of those simplifying assumptions lowering the access fee cap can have additional benefits as discussed in section VII.D.2.d. Finally, for tick constrained stocks, access fees and rebates can distort liquidity supply and demand, increasing transaction costs for investors.1009 In response to the Proposing Release, the Commission received extensive comment regarding the role of fees and rebates on the supply of and demand for liquidity.1010 Below, to address comments, the Commission supplements its discussion on how access fees and fee-funded rebates may affect trading in the presence of the commonly used maker-taker fee structure.1011 This section addresses certain aspects of fees and rebates in developing a basic framework for evaluating the principle economic effects and responding to comments. The remaining aspects and effects are considered in sections VII.C.2, VII.D.2, and VII.D.3. a. Liquidity With Access Fees and Rebates In the absence of ticks, the market for liquidity, discussed in section VII.B.1, may generally be represented by an economic model of supply and demand, as shown below in panel A of figure
1.1012 The vertical axis represents the
price of liquidity, here the quoted half￾spread (i.e. because the liquidity taker is not typically on both sides of the trade, we use the quoted half-spread to measure price of liquidity 1013), while the horizontal axis represents the quantity of liquidity.1014 Liquidity providers supply liquidity, and the supply curve is upward sloping because liquidity providers are willing to supply more liquidity when the price of liquidity is higher. Liquidity takers demand liquidity, and the demand curve is downward sloping because liquidity takers demand less liquidity at higher prices of liquidity (i.e., they trade less when they have to pay higher transaction costs). The supply and demand curves intersect at the point where the amount of liquidity supplied equals the quantity demanded, which indicates the equilibrium price and quantity of liquidity in the market.

ER08OC24.001</GPH>
Pllce (Half.Spread)
Equiliblium
(Nominal) Pllce ofUqukffly Pllce (Hd,Spread) Panel A EquilllHfUln ll(luldlly SUpplled
Figure 1
Quanlly
(Amount of Uquldily)
Panel B
&ijJpttafter￾Quanllly
(Amollnl of Uquldily)
Figure 1: The above figures illustrate the market for liquidity represented by a supply curve and a demand curve.
Liquidity suppliers contribute to the supply of liquidity by posting passive orders such as limit orders, while liquidity demanders trade against the passive orders thereby taking liquidity. All other things equal, the quantity of liquidity supplied increases as the price of liquidity increases, while the quantity of liquidity demanded decreases as the price of liquidity increases. The price of liquidity is represented by the quoted half-spread because the half-spread represents the price which liquidity takers must pay for the immediacy of executing their trade while liquidity providers stand to capture the half-spread The intersection of these curves sets the equilibrium price of liquidity (i.e., the half-spread) and the equilibrium quantity of liquidity. As demonstrated in the supply-demand diagram on the right, rebates shift the supply curve so that there is more supply for a given quoted price of liquidity. Fees increase the cost of demanding liquidity so the shift in the demand curve reflects that there will be less demand at any given price of liquidity. Because both supply and demand curves vertical shifts are parallel, they continue to intersect at the same value along the horizontal axis (the amount of liquidity supplied/demanded).

1015This level of access fee and rebate is similar to current fees and rebates on maker-taker lit exchanges and may vary based on pricing tier; see infra section VII.C.2.b. To illustrate the salient economic points, this discussion assumes that liquidity providers and demanders know what the resulting access fees and rebates from a transaction will be. As discussed below in sections VII.C.2.b and VII.D.3, in the baseline this is only ever approximatively true since fees and rebates are often determined using current and future volumes. But as long as market participants are able to approximate their fees and rebates, then they will generally behave as described in this paragraph— liquidity providers will adjust their quotes on account of the expected rebate, and liquidity demanders will adjust the quoted price they are willing to pay on account of the expected fee. 1016 If the demand curve were vertical (namely if liquidity demanders were not sensitive to price), the curve would not shift. However, the conclusions would be the same in that the supply curve shift would cause the same quantity to be supplied at a lower price. 1017The concept that net cost (or net spread) is the correct way to measure the cost of liquidity is supported by basic economics and by commenter statements. See Citigroup Letter at 6 (stating, ‘‘Many of CGMI’s institutional clients are increasingly measuring their execution costs all-in, inclusive of exchange fees.’’). 1018This discussion refers to the cost to take liquidity and proceeds from providing liquidity at the time of the execution of the trade. 1019The term frictions here refers to factors that prevent prices from perfectly reflecting the forces of liquidity supply and demand. It does not imply that a frictionless market is the optimal market construct. As discussed throughout this release, a tick size that is too small creates pennying concerns which can harm market quality outcomes. See infra
section VII.D.1.b for additional discussion.
1020Harris Letter at 2–3, describing the equilibrium spreads model (citing Kalman J. Cohen, et al., Transaction Costs, Order Placement Strategy and Existence of the Bid-Ask Spread, 89 J. Pol. Econ. 287 (1981)). 1021See Katya Malinova & Andreas Park, Subsidizing Liquidity: The Impact of Make/Take Fees on Market Quality, 70 J. Fin. 509 (2015). 1022The authors also present evidence suggesting that adverse selection costs decreased with the introduction of the maker-taker model by increasing retail trader participation. See Malinova and Park (2015), supra note 1021. In the United States, most retail orders in NMS stocks are handled by wholesalers, who execute a large majority of the dollar volume of the retail orders they handle via internalization. See, e.g., Lewis Letter attached to Virtu Letter II at p 8–12 and 40–45. Consequently, should there be a decrease in retail participation, we do not expect this to cause an increase in adverse selection on exchanges, because so much of retail order flow passes through a wholesaler before being executed. 1023See Budish Letter and Harris Letter; see also supra notes 999 to 1008, and surrounding discussion. 1024This stock may become tick-constrained in the future, and indeed some stocks that have an average spread of 2 cents over a prior period could be tick-constrained during that time. 1025Equivalently, the liquidity provider is only willing to quote at 1.4 cents or above, and therefore the quoted spread must be at least 2 cents. 1026See section VII.B.3.a. Consider next the effect on liquidity of a 30 mils access fee used to fund a 30 mils rebate.1015 With a rebate of 30 mils, liquidity providers who submit buy orders are willing to increase their bid price by 30 mils, while liquidity providers who submit sell orders are willing to lower their ask price by 30 mils. For this reason, the bid-ask spread narrows by 60 mils, and the quoted half￾spread (i.e., price of liquidity) narrows by 30 mils. Accordingly, in panel B of
figure 1, the supply curve for liquidity
shifts down by 30 mils. Likewise, the 30 mils access fee acts as a tax on liquidity takers. This means that, for the same amount of liquidity, liquidity takers will reduce the price they are willing to pay by 30 mils to account for the access fee (since their net cost to take liquidity is the price they pay plus the access fee). In panel B of figure 1, this effect is represented by the liquidity demand curve shifting down by 30 mils. Because both the supply curve and the demand curve shift down by 30 mils, they continue to intersect at the same quantity of liquidity.1016 That is, the equilibrium amount of liquidity remains unchanged, but the displayed price is 30 mils lower. The net cost to take liquidity is not affected since it equals the price of liquidity plus the 30 mils access fee; 1017 similarly, the net proceeds from providing liquidity are not affected since they equal the price of liquidity plus the 30 mils rebate.1018 Thus, in the absence of frictions (e.g., discrete prices, minimum pricing increments, or agency problems), the level of fees and rebates (when fees and rebates are equal in size) does not affect the total costs of trading.1019 As one commenter put it, ‘‘when liquidity suppliers are subsidized at the cost of liquidity takers, spreads decline. If they did not, everyone would want to be a liquidity supplier, and no trade would occur. So, maker-taker pricing created narrower quoted spreads on average, but it does not affect the net cost of providing liquidity.’’ 1020 Academic work on the effect of a fee change on the Toronto Stock Exchange supports the model.1021 In 2005, the exchange began offering a rebate to liquidity suppliers in a pre-defined subset of securities. For securities in which the total fee remained constant but was split into a maker rebate and a taker fee, the authors find that quoted spreads narrow, but the net spread— which includes the quoted spread and the take fee—did not change.1022 b. Liquidity With Ticks, Access Fees, and Rebates
Section VII.B.3.a shows that the
quoted spread adjusts to a fee and rebate by narrowing by the amount of the fee and the rebate. The supply and demand curves in section VII.B.3.a are continuous, whereas in fact displayed liquidity has discrete price points, namely ticks (the focus of section VII.B.2). In the presence of ticks, access fees and rebates need no longer be neutral, namely the quoted spread may not adjust in the same seamless way to the presence of a rebate. The basic intuition of section VII.B.3.a states that a liquidity provider is indifferent between receiving compensation from the spread and compensation from the rebate. If a rebate is offered, the liquidity provider in a competitive market responds by accepting a lower spread. However, if the quoted spread is already at its floor, as specified by the tick, it is not possible to further lower the spread. In this case, unlike in section VII.B.3.a, the rebate and access fee are therefore not neutral. Rather, the floor creates rents that in this case accrue to those liquidity suppliers that are able to get to the front of the queue the fastest. These rents are earned at the expense of liquidity takers and slower liquidity providers.1023 For stocks that are not constrained by the tick, rebates and access fees are again on average neutral, as we now show. Consider, for example, a stock with an economic spread of 2 cents. Absent a fee or rebate, the quoted spread would equal the economic spread rounded up to the next smallest tick, or this case, also 2 cents.1024 Given a 30 mil rebate, a liquidity provider would be willing to quote a spread of 1.4 cents (the economic spread of 2 cents minus twice the 0.3 cents rebate, or 1.4 cents). However, given the tick, it is likely that the quoted spread would be a full 2 cents. If it were any lower, the profit￾maximizing liquidity provider would incur a marginal cost (the economic spread of 2 cents) that exceeds the marginal benefit (i.e., the next smaller quoted spread of 1 cent plus twice the
0.3 cent rebate, or 1.6 cents). It is
unlikely that the liquidity provider would be willing to do this.1025 Now, consider the perspective of the market participant taking liquidity. Because the liquidity taker is not typically on both sides of the trade, we use the half￾spread to measure their costs due to the bid-ask spread.1026 This liquidity taker pays the half-spread along with the access fee. In this case, the half-spread is 1 cent and the access fee is 0.3 cents, so the total is 1.3 cents. As stated above, in the absence of rebates, the quoted spread would equal its economic spread of 2 cents. The half-spread would be 1 cent, less than 1.3 cents, meaning that the liquidity taker pays more when there are fees and rebates. However, consider a stock with an economic spread of 2.5 cents. Given a

1027Let S* equal the economic spread, R the rebate, and the tick size. Then, for any integer N ≥1, the liquidity provider collects t¥ 2R more in profits under no rebates versus rebates when S* ∈ (tN, tN

• 2R], and 2R less in profits when S* e (tN + 2R,tN
• t]. These amounts sum to zero assuming a
  uniform distribution over the interval. The liquidity taker is on the other side of the trade; in total, the profits to providers are losses to takers, and so these also sum to zero. In contrast, for N >1, the liquidity provider collects profits 2R over the interval (0,t], The assumption of a uniform distribution over the interval is not necessary for the result. It is a reasonable and standard assumption given the lack of specific information on the properties S* of over intervals of length equal to the tick size. 1028See Nasdaq Letter I at 23. 1029 In the commenter’s example, prices account for the presence of a 1 cent tick. This explains why the liquidity provider is offering shares at $10.02 and $10.03 and not at prices in between. The liquidity provider earns: ($10.02 * 651 + $10.03 * 349)/1,000 = $10.02349 per share to sell 1,000 shares. 1030 ($10.02 * 651 + $10.03 * 349)/1,000 = $10.02349 per share to buy 1,000 shares. 1031 (951 * $10.02 + 49 * $10.03)/1,000 + $0.003 = $10.02349 per share, where $0.003 is the rebate per share. 1032See section VII.E.3 for discussion of the commenter’s concerns regarding capital formation as it relates to reduced depth at the NBBO. 1033Proposing Release, supra note 11, at 80328– 29. 1034See, e.g., Nasdaq v. SEC, 34 F.4th 1105, 1111–15 (D.C. Cir. 2022). This approach also follows Commission staff guidance on economic analysis for rulemaking. See Current Guidance on Economic Analysis in SEC Rulemaking, (Mar. 16, 2012), available at https://www.sec.gov/divisions/ riskfin/rsfi_guidance_econ_analy_ secrulemaking.pdf (‘‘The economic consequences of proposed rules (potential costs and benefits including effects on efficiency, competition, and capital formation) should be measured against a baseline, which is the best assessment of how the world would look in the absence of the proposed action.’’); id. at 7 (‘‘The baseline includes both the economic attributes of the relevant market and the existing regulatory structure.’’). The best assessment of how the world would look in the absence of the proposed or final action typically does not include recently proposed actions, because that would improperly assume the adoption of those proposed actions. 30 mil rebate, a liquidity provider would be willing to quote a spread of
  1.9 cents (the economic spread of 2.5
  cents minus twice the 0.3 cents rebate, or 1.9 cents). Again, given the tick, it is likely that the quoted spread would be a full 2 cents. The liquidity taker would again pay 1.3 cents. In this case, in the absence of rebates, it is likely that the quoted spread would be 3 cents. Otherwise, the profit-maximizing liquidity provider would incur a marginal cost (the economic spread of
  2.5 cents) that exceeds the marginal
  benefit (i.e., the next smallest quoted spread of 2 cents). Given that the quoted spread is 3 cents, the quoted half-spread would be 1.5 cents, so the liquidity taker would likely pay more if there were no fees and rebates. This same reasoning can be used to show that, except for stocks for which the economic spread is one cent or below, the effect of fees and rebates cancels out mathematically.1027 The main intuition is that, while liquidity providers will quote one tick lower if the rebate pushes the spread below the next smaller tick, liquidity demanders pay the access fee even if the rebate does not change the quoted spread. We show that the gains to liquidity demanders from this situation are exactly offset by their losses when the rebate does not result in quoting one tick lower, all provided that the economic spread is greater than one cent. Thus, the supply-demand curve reasoning in section VII.B.3.a is robust to the introduction of the tick, provided that the economic spread is greater than 1 tick. In other words, for stocks for which the economic spread exceeds 1 tick, fees and rebates are neutral on average. One commenter provides a numerical example that might appear to go against this neutrality result. In particular, the commenter states that, ‘‘because rebates also increase depth, it is possible that the costs of access fees for liquidity takers are more than offset by the tighter spreads and depth that they create.’’ 1028 The numerical example is as follows: A liquidity taker wants to buy 1,000 shares, and the tick size is 1 cent. Without access fees and rebates, the liquidity provider is willing to sell 651 shares at a price of $10.02 and 349 shares at a price of $10.03, in which instance the liquidity provider earns $10.02349 per share.1029 The liquidity taker then pays an average of $10.02349 per share to buy the 1,000 shares.1030 In the presence of an access fee and rebate of 30 mils per share (i.e., $0.003 per share), the commenter states that the liquidity provider is willing to sell all 1,000 shares at $10.02, in which instance the liquidity provider earns only $10.023 per share (i.e., $10.02 per share + $0.003 rebate per share = $10.023 per share). The liquidity taker thus pays only $10.023 per share to buy the 1,000 shares in the presence of an access fee and rebate of 30 mils (i.e., $10.02 per share + $0.003 access fee per share = $10.023 per share). However, it is not clear from the example why the liquidity provider would be willing to offer all of the 1,000 shares at $10.02 per share and earn only $10.023 per share in the presence of the rebate when it earned $10.02349 per share absent the rebate. Rather, in the presence of the rebate, the liquidity provider would be willing to sell 951 shares at $10.02 and 49 shares at $10.03, in which instance it would also earn $10.02349 per share on average.1031 Depth does increase, as the commenter states. However, consistent with the neutrality argument, the liquidity taker pays
  exactly the same as without the fees and rebates. Thus, while tighter spreads offset the cost of access fees, they do not ‘‘more than offset’’ these fees.1032 The previous argument for neutrality pertained to stocks for which the economic spread was greater than one tick. For stocks for which the economic spread is less than 1 tick, however, fees and rebates are not neutral. Rather, because the quoted spread cannot fall to compensate for the rebate, provision of liquidity is overpriced at the spread of one tick. Because the price is artificially high, the supply of liquidity is distorted,1033 leading to rents for liquidity providers who can get to the top of the queue the fastest. It is harder as a result for slower liquidity providers, such as retail investors and institutions to have their limit orders executed. It is also more expensive for investors seeking to access liquidity. For these stocks, lowering the access fees lowers rents and improves market quality, making it cheaper to transact for investors as a whole.
  C. Baseline
  The baseline against which the costs, benefits, and the effects on efficiency, competition, and capital formation of the amendments are measured consists of the current state of the trading environment for NMS stocks, including pricing increments; current practice as it relates to order routing, quotes, fees, and rebates; and availability of data about quotes, fees, and rebates; and the current regulatory framework. The economic analysis appropriately considers existing regulatory requirements, including recently adopted rules, as part of its economic baseline against which the costs and benefits of the amendments are measured.1034

1035See, e.g., CCMR Letter; Independent Trustees Letter; SIFMA Letter I; Citadel Letter I; Equity Market Structure Citadel Letter; ICAN Letter; Virtu Letter II; AIC Letter; AIMA Letter; Antitrust Division of the DOJ Letter; Wagner Letter; Danny Mulson Letter. See also supra notes 135 to 137, and surrounding text, discussing these comments. Many commenters referred to the ‘‘Equity Market Structure Proposals’’ as a group, and we understand that commenters intended this to mean the four rulemaking proposals the Commission issued on Dec. 14, 2022. Of those four, only one was adopted prior to these amendments. One commenter described ‘‘Interconnected Rules’’ to include those four proposed rules issued on Dec. 14, 2023, as well as certain rules that were previously or later adopted, see infra notes 1036 to 1046; and a variety of other proposed rules including Safeguarding Advisory Client Assets, Investment Advisers Act of 1940 Release No. 6384 (Aug. 23, 2023), 88 FR 14,672 (Mar. 9, 2023). See AIC Letter at 1 n.3, 9 n.30 (listing rules and proposed rules, but not explaining a specific connection to the Proposing Release). 1036 In addition, commenters also mentioned the proposal that was ultimately adopted as Private Fund Advisers; Documentation of Registered Investment Adviser Compliance Reviews, Advisers Act Release No. 6383 (Aug. 23, 2023), 88 FR 63206 (Sept. 14, 2023) (‘‘Private Fund Advisers Adopting Release’’). On June 5, 2024, the Fifth Circuit issued a ruling that vacated the rules and amendments adopted in the Private Fund Advisers Adopting Release. Nat’l Ass’n of Priv. Fund Managers v. SEC, 103 F.4th 1097 (2024). 1037Shortening the Securities Transaction Settlement Cycle, Securities Exchange Act Release No. 96930 (Feb. 15, 2023), 88 FR 13872 (Mar. 6,
2023) (‘‘Settlement Cycle Adopting Release’’). The
rules and rule amendments adopted in the Settlement Cycle Adopting Release shorten the standard settlement cycle for most broker-dealer transactions from two business days after the trade date to one business day after the trade date. To facilitate an orderly transition to a shorter settlement cycle, a new rule also establishes requirements related to completing allocations, confirmations, and affirmations no later than the end of trade date for the processing of institutional transactions subject to the rule; requires registered investment advisers to make and keep records of each confirmation received, and of any allocation and each affirmation sent or received, with a date and time stamp for each allocation and affirmation indicating when it was sent or received; and requires clearing agencies that provide a central matching service to establish, implement, and enforce policies and procedures reasonably designed to facilitate straight-through processing and to file an annual report regarding progress with respect to straight-through processing. With certain exceptions, the rule has a compliance date of May 28, 2024. See Settlement Cycle Adopting Release,
section VII.
1038 Form PF: Reporting Requirements for All Filers and Large Hedge Fund Advisers, Advisers Act Release No. 6546 (Feb. 8, 2024), 89 FR 17984 (Mar. 12, 2024) (‘‘February 2024 Form PF Adopting Release’’). The Form PF amendments are designed to enhance the Financial Stability Oversight Council’s ability to monitor systemic risk as well as bolster the SEC’s regulatory oversight of private fund advisers and investor protection efforts. The compliance date for the rule is Mar. 12, 2025. February 2024 Form PF Adopting Release, section II.F. 1039 Form PF; Event Reporting for Large Hedge Fund Advisers and Private Equity Fund Advisers; Requirements for Large Private Equity Fund Adviser Reporting, Investment Company Act of 1940 Release No. 6297 (May 3, 2023), 88 FR 38146 (June 12, 2023) (‘‘May 2023 SEC Form PF Adopting Release’’). The Form PF amendments adopted in May 2023 require large hedge fund advisers and all private equity fund advisers to file reports upon the occurrence of certain reporting events. The compliance dates were Dec. 11, 2023, for the event reports in Form PF sections 5 and 6, and June 11, 2024, for the remainder of the Form PF amendments in the May 2023 SEC Form PF Adopting Release. See May 2023 SEC Form PF Adopting Release, section II.E. 1040 Further Definition of ‘‘As a Part of a Regular Business’’ in the Definition of Dealer and Government Securities Dealer in Connection with Certain Liquidity Providers, Securities Exchange Act Release No. 34–99477 (Feb. 6, 2024), 89 FR 14938 (Feb. 29, 2024) (‘‘Dealer Adopting Release’’). New Rules 3a5–4 and 3a44–2 further define the phrase ‘‘as a part of a regular business’’ as used in the statutory definitions of ‘‘dealer’’ and ‘‘government securities dealer.’’ The compliance date is Apr. 29, 2025, for persons engaging in activities that meet the qualitative factors under the final rules. See Dealer Definition Adopting Release,
section II.B.
1041 Modernization of Beneficial Ownership Reporting, Securities Act of 1933 Release No. 11253 (Oct. 10, 2023), 88 FR 76896 (Nov. 7, 2023) (‘‘Beneficial Ownership Adopting Release’’). Among other things, the amendments generally shorten the filing deadlines for initial and amended beneficial ownership reports filed on Schedules 13D and 13G, and require that Schedule 13D and 13G filings be made using a structured, machine-readable data language. The amendments are effective Feb. 5,
2024. The new filing deadline for Schedule 13G
will not be required before Sept. 30, 2024, and the rule’s structured data requirements will not be required until Dec. 18, 2024. Beneficial Ownership Adopting Release, section II.G. 1042Reporting of Securities Loans, Securities Exchange Act Release No. 98737 (Oct. 13, 2023), 88 FR 75644 (Nov. 3, 2023) (‘‘Rule 10c–1a Adopting Release’’). This rule requires any covered person who agrees to a covered securities loan on behalf of itself or another person to report specified information about the covered securities loan to a registered national securities association (currently FINRA is the only registered national securities association)—or rely on a reporting agent to do so— and requires the registered national securities association to make certain information it receives available to the public. Covered persons will include market intermediaries, securities lenders, and broker-dealers, while reporting agents include certain brokers, dealers, or registered clearing agencies. The rule’s compliance dates require that the registered national securities association propose rules pursuant to Rule 10c–1a(f) by May 2, 2024, and the proposed rules shall be effective no later than Jan. 2, 2025; that covered persons report Rule 10c–1a information to a registered national securities association on or by Jan. 2, 2026 (which requires that the registered national securities association have implemented data retention and availability requirements for reporting); and that the registered national securities association publicly report Rule 10c–1a information by Apr. 2, 2026. Rule 10c–1a Adopting Release, section VIII. 1043Short Position and Short Activity Reporting by Institutional Investment Managers, Securities Exchange Act Release No. 98738 (Oct. 13, 2023), 88 FR 75100 (Nov. 1, 2023) (‘‘Short Position Reporting Adopting Release’’). Under the new rule, institutional investment managers that meet or exceed certain specified reporting thresholds are required to report, on a monthly basis using the related form, specified short position data and short activity data for equity securities. The compliance date is Jan. 2, 2025. See Short Position Reporting Adopting Release, section VI. In addition, the Commission adopted an amendment to the national market system (‘‘NMS’’) plan governing the consolidated audit trail (‘‘CAT’’) created pursuant to the Exchange Act to require the reporting of reliance on the bona fide market making exception in the Commission’s short sale rules. The Commission published the text of the amendment to the NMS plan governing the CAT (‘‘CAT NMS Plan’’) in a separate notice. The compliance date for the amendment to the CAT NMS Plan is July 1,
2025. See SEC, Notice of the Text of the
Amendment to the National Market System Plan Governing the Consolidated Audit Trail for Purposes of Short Sale-Related Data Collection, Securities Exchange Act Release No. 98739 (Oct. 13, 2023), 88 FR 75079 (Nov. 1, 2023). 1044Rule 605 Amendments, supra note 10. The Commission adopted amendments to rules requiring disclosures for order executions in NMS stocks, including expanding the scope of reporting entities, modifying the scope of orders covered by the rule, and modifying the information required to be reported under the rule. The rule has an effective date of June 14, 2024, and, with a few exceptions, a compliance date of Dec. 14, 2025. See Rule 605 Amendments, section VII. 1045Standards for Covered Clearing Agencies for U.S. Treasury Securities and Application of the Broker-Dealer Customer Protection Rule with Respect to U.S. Treasury Securities, Securities Exchange Act Release No. 99149 (Dec. 13, 2023), 89 FR 2714 (Jan. 16, 2024) (‘‘Treasury Clearing Adopting Release’’). Among other things, the amendments require covered clearing agencies for U.S. Treasury securities to have written policies and procedures reasonably designed to require that every direct participant of the covered clearing agency submit for clearance and settlement all eligible secondary market transactions in U.S. Treasury securities to which it is a counterparty. The compliance date was Mar. 18, 2024, for covered clearing agencies to file any proposed rule changes pursuant to Rules 17Ad–22(e)(6)(i), 17Ad– 22(e)(18)(iv)(C), and 15c3–3, which must be effective by Mar. 31, 2025. With respect to the changes to Rule 17Ad–22(e)(18)(iv)(A) and (B), (i) covered clearing agencies were required to file any proposed rule changes regarding those amendments no later than June 14, 2024, and (ii) those changes must be effective by Dec. 31, 2025, for cash market transactions encompassed by section (ii) of the definition of an eligible secondary market transaction, and by June 30, 2026, for repo transactions encompassed by section (i) of the definition of eligible secondary market transactions. Finally, the Commission amended the broker-dealer customer protection rule to permit margin required and on deposit with covered clearing agencies for U.S. Treasury securities to be included as a debit in the reserve formulas for accounts of customers Continued Several commenters requested that the Commission consider interactions between the economic effects of the proposed rule and other recent Commission rules.1035 Since the date of the Proposing Release, the Commission has adopted eight rules mentioned by commenters,1036 namely the Settlement Cycle Adopting Release,1037 the February 2024 Form PF Adopting Release,1038 the May 2023 SEC Form PF Adopting Release,1039 the Dealer Adopting Release,1040 the Beneficial Ownership Adopting Release,1041 Rule 10c–1a Adopting Release,1042 the Short Position Reporting Adopting Release,1043 and the Rule 605 Amendments.1044 The Commission has also considered
the potential effects on entities that are implementing other recently adopted rules during the compliance period for these amendments, including the Treasury Clearing Adopting Release 1045 and the

and proprietary accounts of broker-dealers, subject to certain conditions. Compliance by the direct participants of a U.S. Treasury securities covered clearing agency with the requirement to clear eligible secondary market transactions is not required until Dec. 31, 2025, and June 30, 2026, respectively, for cash and repo transactions. See Treasury Clearing Adopting Release, section III. 1046Regulation S–P: Privacy of Consumer Financial Information and Safeguarding Customer Information, Securities Exchange Act Release No. 100155 (May 15, 2024), 89 FR 47688 (June 3, 2024) (‘‘Customer Notification Adopting Release’’). The Commission amended Regulation S–P to require brokers, dealers, investment companies, registered investment advisers, and transfer agents registered with the Commission or another appropriate regulatory agency to adopt written policies and procedures for incident response programs to address unauthorized access to or use of customer information. These must include procedures for providing timely notification to individuals affected by an incident involving sensitive customer information with details about the incident and information designed to help affected individuals respond appropriately. Among other things, the amendments also broadened the scope of information covered by the safeguards rule and the disposal rule, and extended the requirements to safeguard customer records and information to all transfer agents. The compliance date for larger entities is Dec. 3, 2025, and for smaller entities, June 3, 2026. Customer Notification Adopting Release, section II.F. 1047Some commenters assumed that the four proposed rules issued on Dec. 14, 2022, would be implemented simultaneously, and therefore stated that the baseline in the Proposing Release was inaccurate to the extent it did not contemplate that the other rules have gone into effect. See, e.g., Equity Market Structure Citadel Letter at 15. As discussed above, however, our baseline does not assume the adoption of proposed rules. Instead, the baseline changes incrementally with each adopted rule. To the extent those or other proposals are adopted in the future, the baseline in those subsequent rulemakings will reflect the existing regulatory requirements at that time. 1048See infra section VII.D.6.b. 1049See, e.g., SIFMA Letter II (stating that variable tick sizes could diminish the ability to compare execution quality using the Rule 605 disclosures); Citadel Letter II (stating execution quality statistics are important to understanding the effects of these amendments on market quality); AIMA Letter (suggesting finalization of the proposed Rule 605 amendments would, along with the MDI round lot order definition, provide a much more informed economic baseline against which to assess other equity market structure proposals); see also infra
section VII.D.6.a, discussing this topic.
1050See, e.g., NYSE Continued Listing Standards, § 802.01C, available at https://www.nyse.com/ listings/resources; Rulebook—The Nasdaq Stock Market, § 5400, available at https://listingcenter. nasdaq.com/rulebook/nasdaq/rules. 1051See Reg NMS Rule 610(d). A locked market occurs when the bid and ask price for a security are identical. A crossed market occurs when the bid is higher than the ask. 1052The term ‘‘wholesaler’’ is not defined in Regulation NMS, but commonly refers to a broker￾dealer acting as an OTC market maker that primarily focuses on attracting orders from broker￾dealers that service the accounts of a large number of individual investors, referred to in this release as ‘‘retail brokers.’’ 1053See Securities Exchange Act Release No. 67347 (July 3, 2012), 77 FR 40673 (July 10, 2012) (approving retail liquidity programs on a pilot basis for NYSE and NYSE Amex and granting rule 612 exemption) (‘‘NYSE Retail Liquidity Program Approval Order’’); see also CBOE BYX Rule 11.24; Securities Exchange Act Release No. 68303 (Nov. 27, 2012), 77 FR 71652 (Dec. 3, 2012) (CBOE BYX Retail Pilot Program Approval Order); and Nasdaq BX Equity Rule 4780; Exchange Act Release No. 73702 (Nov. 28, 2014), 79 FR 72049 (Dec. 4, 2014) (NASDAQ BX Retail Pilot Program Approval Order). 1054See discussion in supra section III.C.1. 1055See specifically, NYSE Retail Liquidity Program Approval Order, supra note 1053, at
40679. The Commission stated that ‘‘[i]nternalizing
broker-dealer[s] can offer sub-penny executions, provided that such executions do not result from impermissible sub-penny orders or quotations’’ by ‘‘typically select[ing] a sub-penny price for a trade without quoting at that exact amount or accepting orders from retail customers seeking that exact price.’’ 1056See, e.g., UTP Participant Input Specification (April 2024), available at https://www.utpplan.com/ DOC/UtpBinaryInputSpec_Fractional.pdf. 1057See Proposing Release, supra note 11, at 80272 n.70 (citing to industry and academic Customer Notification Adopting Release.1046 These recently adopted rules were not included as part of the baseline in the Proposing Release because they were not yet adopted at that time, but they are part of the baseline in this analysis.1047 In response to commenters, this economic analysis considers potential economic effects arising from any overlap in compliance dates between these amendments and the other recent amendments.1048 It also considers interactions between these amendments and the Rule 605 Amendments.1049

1. Tick Sizes
   Preexisting Rule 612 of Regulation NMS restricts the ability of venues to display, rank, or accept quotations in NMS stocks beyond a certain minimum quoting increment (or tick). This section discusses current regulation on tick sizes and Commission analysis showing that the current tick size acts as a binding price floor on the quoted spread a significant portion of the time for a large fraction of the share volume transacted in NMS stocks. a. Current Regulations Preexisting Rule 612 of Regulation NMS, which came into effect on August 29, 2005, prohibited a national securities exchange, national securities association, ATS, vendor, or broker or dealer from displaying, ranking, or accepting quotations, orders, or indications of interest in any NMS stock priced in an increment smaller than $0.01 if the quotation, order, or indication of interest is priced equal to or greater than $1.00 per share. If the quotation, order, or indication of interest is priced less than $1.00 per share, the minimum pricing increment is $0.0001. Most listing exchanges require stocks listed on their exchanges to maintain a price greater than $1.00 per share, and consequently $0.01 is the prevailing tick size for most quotes and orders for NMS stocks.1050 Preexisting Rule 612 of Regulation NMS effectively establishes $0.01 as the minimum spread that can be quoted for stocks priced equal to, or greater than, $1.00 per share because the NBBO is determined by the best displayed round lot quotes, and exchanges are required to have rules in place to avoid and reconcile locked and crossed quotations.1051 While preexisting Rule 612 of Regulation NMS restricts quoting or submitting orders in sub-penny increments for NMS stocks priced greater than or equal to $1.00, it does not restrict trading in sub-penny increments. Sub-penny trading on exchanges and ATSs occurs primarily as a result of midpoint orders and benchmark trades. Benchmark trades, such as volume weighted average price (‘‘VWAP’’) and time weighted average price (‘‘TWAP’’) orders, may not be explicitly priced in an impermissible sub-penny increment, but the ultimately determined execution price may be in a sub-penny increment. Trading at sub￾penny increments also occurs as a result of broker-dealers, including some OTC market makers known as wholesalers, internalizing customer order flow at sub-penny prices.1052 Sub-penny trading on registered exchanges may also occur as a result of their RLPs. The Commission granted exemptions from Rule 612 to various national securities exchanges’ RLPs as a means to allow them to compete with OTC sub-penny price improvement.1053 Under the RLPs, exchanges can accept and rank certain quotes and orders from certain participants in sub-penny increments as small as $0.001.1054 The national securities exchanges designed the RLPs to attract retail orders by providing a potential for price improvement at sub-penny levels because ‘‘most marketable retail order flow is executed in the OTC
   markets, pursuant to bilateral agreements, without ever reaching a public exchange’’ and OTC market makers typically pay retail brokers for their order flow.1055 Quotes in RLP programs are not displayed. Instead, the appropriate SIP disseminates a flag indicating the side of the market for which an exchange has an RLP quote available at a price better than the NBBO. Because the exclusive SIP does not make known the price or the size of the RLP quote, market participants do not see the full liquidity available in RLP programs.1056 To date, RLPs have not attracted a significant volume of retail order flow.1057

discussions on why RLPs may not attract significant retail order flow). 1058See Lewis Letter at 33–34, attached to Virtu letter II. 1059See Proposing Release, supra note 11, table 4. 1060The data derived in table 3 was derived using the same methodology as corresponding table 4 in the Proposing Release (PR table 4). See Proposing Release, supra note 11, at 80308. The only differences between the tables are that table 3 uses data for all trading days in 2023 (instead of from Jan. to May 2022 in PR table 4), and table 3, because of our policy choice to set the minimum tick size at 0.5c (for quotes and orders priced $1.00 or more for NMS stocks that have a TWAQS of $0.015 or less), adds tick size bins for quoted spreads from 1.1c to 1.5c and 1.5c to 2c. 1061Because of the $0.01 minimum quoting increment for NMS stocks priced equal to or greater than $1.00 per share, a stock cannot have a quoted spread less than $0.01 unless markets become locked or crossed. The existence of locked and crossed markets can in some cases result in time weighted quoted spread that are very slightly lower than $0.01. However, even for stocks with spreads most constrained by the tick, even a faction of a second spent with a higher spread would likely result in an average quoted spread higher than $0.01. For example, a large trade can exhaust liquidity deeper in the limit order book such that the stock’s quoted spread temporarily increases from $0.01. Thus, time weighed quoted spreads will virtually always be greater than $0.01. This makes $0.011 a more pragmatic minimum cutoff for empirical analysis than $0.01. 1062For the share volume, 74.3% = 65.2% (i.e., Quoted Spread ≤ $0.011) + 9.1% (i.e., $0.015 < Quoted Spread <= $0.02). For the dollar volume, 46.8% = 31.5% (i.e., Quoted Spread ≤ $0.011) + 15.3% (i.e., $0.015 < Quoted Spread <= $0.02). See supra section VII.B.2 for a definition of tick￾constrained; see also Proposing Release, supra note 11, table 4, which used the same methodology and estimated that, in the first six months of 2022, 56% of share volume transacted in NMS stocks with a quoted spread of < $0.011, while an additional 15% of share volume traded in stocks with a quoted spread of $0.011 < and <= $0.02. 1063See, e.g., General Electric, GE Reverse Stock Split Frequently Asked Questions as of September 21, 2021, at 1, available at https://www.ge.com/ sites/default/files/GE_Reverse_Stock_Split_ FAQs.pdf (last accessed July 27, 2024). See also FINRA, Stock Splits, available at https:// www.finra.org/investors/investing/investment￾products/stocks/stock-splits. One commenter stated the ability to trade in increments of smaller than a penny in certain circumstances as means of suggesting that there may be no need for rulemaking.1058 However, it is not possible to post a displayed quote at an increment other than a penny. The economic forces that govern the tradeoffs in determining the tick size depend on the quote being displayed, ranked, and accepted. The
empirical analysis also pertains to displayed quotes. b. Analysis of Quoted Spreads Under Current Ticks This section discusses empirical analysis by the Commission on the prevalence of trading at different quoted spread ranges, defined in the Proposing Release using the concept of TWAQS.1059 To document the prevalence of trading at different quoted spread ranges, table 3 presents data on trading volume in 2023 based on average time weighted quoted spreads throughout the entire year for NMS stocks with a quotation, order, or indication of interest priced equal to or greater than $1.00 per share.1060 The analysis breaks trading volume each day into one of 17 average quoted spread bins, beginning with stocks that have TWAQS less than or equal to $0.011.1061
Table 3 also reports the daily average
number of stocks in each bin.
The data analysis in table 3 indicates that under the current tick size regime in 2023, 65.2% of share trading volume (31.5% of dollar volume) occurred in stocks in the first average quoted spread bin of $0.011 or less. Table 3 also reports that an additional 9.1% of share volume (15.3% of dollar volume) occurred in stocks with quoted spreads between $0.011 and $0.015. In sum, in
table 3, in 2023, approximately 74.3% of
share volume (46.8% of dollar volume) transacted in NMS stocks (specifically, NMS stocks with a quotation, order, or indication of interest priced equal to or greater than $1.00 per share) which have a quoted spread that is likely to be constrained by the minimum pricing increment,1062 which as discussed both above (section VII.B.2) and below (VII.D.1) increases transaction costs.
TABLE 3—SHARE VOLUME BY QUOTED SPREAD 2023 a
Quoted spread Share volume (%) Dollar volume (%) Average # stocks Quoted Spread ≤ $0.011 ............................................................................................................. 65.2 31.5 1,782 $0.011 < Quoted Spread <= $0.015 ........................................................................................... 9.1 15.3 638 $0.015 < Quoted Spread <= $0.02 ............................................................................................. 4.2 5.2 560 $0.02 < Quoted Spread <= $0.03 ............................................................................................... 5.7 8.4 1,036 $0.03 < Quoted Spread <= $0.04 ............................................................................................... 3.6 7.6 811 $0.04 < Quoted Spread <= $0.05 ............................................................................................... 2.1 3.6 673 $0.05 < Quoted Spread <= $0.06 ............................................................................................... 1.5 2.3 582 $0.06 < Quoted Spread <= $0.07 ............................................................................................... 1.2 2.1 522 $0.07 < Quoted Spread <= $0.08 ............................................................................................... 1.0 1.8 445 $0.08 < Quoted Spread <= $0.09 ............................................................................................... 0.8 1.6 377 $0.09 < Quoted Spread <= $0.10 ............................................................................................... 0.7 1.6 317 $0.10 < Quoted Spread <= $0.11 ............................................................................................... 0.6 1.5 271 $0.11 < Quoted Spread <= $0.12 ............................................................................................... 0.5 1.3 222 $0.12 < Quoted Spread <= $0.13 ............................................................................................... 0.4 1.1 187 $0.13 < Quoted Spread <= $0.14 ............................................................................................... 0.3 1.1 163 $0.14 < Quoted Spread <= $0.15 ............................................................................................... 0.3 1.0 144 $0.15 < Quoted Spread ............................................................................................................... 2.8 13.0 2,177 aThis table provides share volume by stocks with different quoted spread profiles. To create this table, for each day the universe of stocks (identified by a unique stock variable) covered in the WRDS Intra-Day Indicators data are assigned into one of the 17 quoted spread bins based on that day’s time weighted quoted spread as computed by WRDS Intra-Day Indicators. Then all share and dollar trading volume across all trad￾ing days in 2023 is aggregated for each of the 17 quoted spread bins. Percentages based on these totals are then computed.
This table also presents the daily average number of stocks in each bin. To compute this variable, for each trading day in 2023, the number of stocks in each bin is tabulated, then the average across all trading days is presented here. Certain items in this table 3 may also be affected by the MDI Rules once they are fully implemented. See infra section VII.C.3.
c. Reverse Stock Splits
A reverse split exchanges a fixed number of existing shares for a smaller number of new shares. The new shares have a higher price, but there are fewer of them.1063 For example, if an issuer undergoes an 8-for-1 reverse split, eight shares are exchanged for one share that is worth the same as the eight,